Settlement Agreement

The California Air Resources Board (“CARB”), and Ford Motor Company (“Ford”),

hereinafter collectively referred to as the “Parties” or singularly as “Party,” voluntarily

enter into this Settlement Agreement (or “Agreement”) based on the Parties’ mutual

interest in mitigating their respective risks and resolving potential legal disputes

concerning the authority of CARB and those states that have adopted California’s vehicle

standards (“Section 177 States”) to adopt and enforce greenhouse gas (“GHG”) emissions

standards applicable to new light-duty motor vehicles manufactured or distributed by

Ford for Model Years 2021-2026 in light of the SAFE Rule Part One and Part Two, as

discussed and defined below.

The Parties enter into this Agreement in light of ongoing and potential lengthy litigation

involving the Federal Government, CARB and the Section 177 States regarding the

SAFE Rule Part One and Part Two (collectively the “Litigation”). As elaborated below,

Ford seeks, among other things, flexibility and certainty that will enable it to avoid

compliance risks associated with California light duty vehicle GHG standards in

California and the Section 177 States while maintaining or enhancing its current motor

vehicle planning, production, sales, distribution, and related efforts regardless of the

outcome of the current and pending litigation. CARB seeks, among other things, greater

certainty regarding continuing automotive GHG emission reductions and vehicle

electrification during the Model Years (“MYs”) subject to this Agreement.

The Parties

The California Air Resources Board: CARB is the state air regulator for California (Cal.

Health and Safety Code § 39600

et seq.

), and sets vehicle emissions standards pursuant to

state law (

see, e.g.

, 42 U.S.C. § 7543, Cal. Health & Safety Code §§ 43013, 43018.5).

CARB has promulgated GHG emission standards for the light-duty vehicle fleet. (

See

CCR §§ 1961.3

et seq.

Ford: Ford is a manufacturer or distributor of light-duty motor vehicles for sale

throughout the United States that are or may be subject to regulation by the United States

Environmental Protection Agency (“EPA”), the National Highway Traffic Safety

Administration (“NHTSA”), CARB, and the Section 177 States.

Definitions

“Agreement Balance” means the amount of GHG credits available or deficits that apply

to Ford at any given time for purposes of compliance with the Agreement, as calculated

and tracked in accordance with Paragraph 34(A).

“CA Standards” are the standards applicable to light duty vehicle GHG emissions set out

at 13 Cal. Code of Regulations § 1961.3(a)-(g) and encompass all related aspects of

California regulations and test procedures relevant to the implementation of those

standards.

“Days” means calendar days, unless otherwise specified.

“Emissions Benefit Balance” is an accounting designed to ensure the integrity of the

emission benefits of this Agreement. The Emissions Benefit Balance will be calculated

and tracked in accordance with Paragraph 34(B).

“Enforcement Discretion Letters” refers to letters or directives that each Section 177

State issues to document its exercise of enforcement discretion, assurance of support, or

other use of authority allowing Ford to comply with this Agreement to achieve the

objectives of the CA Standards through Model Year 2026, which each state has adopted

pursuant to Section 177 of the Clean Air Act.

10.

“Executive Officer” shall mean the person appointed by CARB pursuant to California

Health & Safety Code

39515.

11.

“Federal Government” shall mean NHTSA and EPA, collectively.

12.

“2018 Federal Program” encompasses the EPA light-duty vehicle GHG standards and

test procedures specified in Title 40 CFR Part 86 Subpart S, Section 86.1818-12 and Part

600 in place on July 1, 2018.

13.

“Federal Program” refers to all applicable light-duty vehicle GHG standards and test

procedures, such as those specified in Title 40 CFR Parts 86 Subpart S, 1066 and 600, as

may be amended from time to time, and as interpreted and implemented by EPA.

14.

“SAFE Rule Part One” encompasses the final actions promulgated by EPA and NHTSA

and published at 84 Fed. Reg. 51,310 (Sept. 27, 2019).

15.

“SAFE Rule Part Two” encompasses the final rules promulgated by EPA and NHTSA

and published at 85 Fed. Reg. 24,174 (April 30, 2020).

16.

“Section 177 States” means, as of the time the Parties entered into this Agreement, the

States of Colorado, Connecticut, Delaware, Maine, Maryland, Massachusetts, New

Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington.

These states, through their legislatures and duly authorized state regulatory agencies,

have adopted GHG standards applicable to the light-duty vehicle fleet identical to CA

standards pursuant to Section 177 of the Clean Air Act. Any additional state (or district

or territory of the United States) that adopts such GHG standards after the Effective Date

of this Agreement, as defined in Paragraph 46, will be considered a Section 177 State for

purposes of this Agreement at such time as that body is authorized to enforce those

standards in accordance with Section 177 of the Clean Air Act.

17.

“Trust Account” means an account established by CARB, with any appropriate input

from the Section 177 States, in which funds may be deposited to address a GHG Credit

Shortfall Breach, as described in Paragraph 39 of this Agreement, and which funds are

for use to promote vehicle electrification or otherwise to reduce vehicle GHG emissions.

18.

“Zero Emission Technology” vehicle means a battery electric vehicle (“BEV”), a fuel

cell electric vehicle (“FCEV”), or a plug-in hybrid electric vehicle (“PHEV”) as that term

is defined in the 2018 Federal Program.

19.

“Zero Emission Vehicle” (“ZEV”) means a vehicle that produces zero exhaust emissions

of any criteria pollutant (or precursor pollutant) or greenhouse gas, excluding emissions

from air conditioning systems, under any possible operational modes or conditions.

20.

For clarity and to provide certainty, unless otherwise defined herein, any terms not

specifically defined in this Settlement Agreement are as defined in the Federal Program,

and shall be interpreted to have the commonly-understood meanings of such terminology

in the context of light duty vehicle GHG regulatory programs.

Mutual Understandings

21.

CARB and Federal GHG Standards. In 2013, EPA issued CARB a waiver of federal

preemption for its CA Standards pursuant to Section 209 of the CAA. 78 Fed. Reg. 2,112

(Jan. 9, 2013). EPA promulgated the 2018 Federal Program regulations in 2012,

establishing federal GHG standards for Model Years 2022-2025; at the same time,

NHTSA undertook an augural rulemaking to promulgate fuel economy standards

consistent with the statutory limitations regarding NHTSA’s ability to adopt fuel

economy standards no more than four years prior to the applicable Model Year. 77 Fed.

Reg. 62,624 (Oct. 15, 2012). The CA Standards include a “deemed to comply” provision

such that compliance with the 2018 Federal Program is deemed as compliance with the

CA Standards. 13 C.C.R. § 1961.3(c). Likewise, compliance with the 2018 Federal

Program qualifies as compliance in Section 177 States.

22.

SAFE Rule Part One. The SAFE Rule Part One is a final agency action in which 1) EPA

published a revocation of the CAA waiver of federal preemption previously granted to

CARB for the CA Standards, at least as to certain Model Years, and 2) NHTSA adopted a

rule declaring that state law regulations pertaining to motor vehicle emissions of carbon

dioxide are preempted by the federal Energy Policy and Conservation Act (“EPCA”).

CARB and the Section 177 States dispute the validity of these actions and the authority

of EPA and NHTSA to take these actions. California has filed a lawsuit, together with

the Section 177 States and other plaintiffs, challenging the NHTSA action in the United

States District Court for the District of Columbia.

State of California

v. Chao

, Case No.

1:19-cv-02826 (D.D.C. filed Sept. 20, 2019). California (including CARB), the Section

177 States, and others have also petitioned for review of the EPA and NHTSA actions in

the SAFE Rule Part One in the United States Court of Appeals for the District of

Columbia Circuit.

State of California v. Wheeler

, Case No. 19-1239 (D.C. Cir. filed

Nov. 15, 2019).

23.

SAFE Rule Part Two. The SAFE Rule Part Two is a final rule that reduces the

stringency of the 2018 Federal Program and modifies alternative compliance measures.

CARB has initiated litigation challenging the SAFE Rule Part Two. Ford has moved to

intervene in the litigation for the limited purpose of addressing the remedy if the court

grants a petition for review of the SAFE Rule Part Two. Under CARB regulations, with

the promulgation of SAFE Rule Part Two, compliance with the Federal Program is no

longer deemed compliance with the CA Standards, and instead manufacturers are

required to comply with the CA Standards without regard to the Federal Program

beginning with the 2021 Model Year. 13 C.C.R.

1961.3(c).

24.

Authority of Agencies to Enter into this Settlement Agreement and Otherwise Exercise

Enforcement Discretion. CARB takes the position that its authority pursuant to Health &

Safety Code § 43213 among other authorities to enforce the CA Standards was illegally

restricted by SAFE Rule Part One, although CARB has stated that it will not take

enforcement actions as to model years covered by EPA’s waiver revocation in the SAFE

Rule Part One unless and until the revoked portions of the waiver are reinstated. CARB

and the Section 177 States take the position that they may enforce their regulations if the

revoked portions of the waiver are reinstated or if the EPA and NHTSA actions in the

SAFE Rule Part One are vacated. CARB and the Section 177 States may exercise

enforcement discretion with respect to such authority, including entering into settlement

agreements and issuing Enforcement Discretion letters or other enforcement discretion

directives. Moreover, CARB has authority to contract with regulated entities or to take

other actions necessary to further its statutory purposes as needed to meet climate and

public health targets.

See

generally

Cal. Health & Safety Code § 39600

et seq

25.

Risks and Benefits. This paragraph describes the Parties’ understandings of important

risks and benefits relevant to this Agreement; it is not intended as a comprehensive

statement of all such risks and benefits. As set forth in Paragraph 2 above, litigation over

the SAFE Rule Part One and the SAFE Rule Part Two, as well as potential further federal

regulatory actions, create uncertainty for Ford regarding the GHG standards that will

apply throughout the United States for Model Year 2021 through Model Year 2026 and

subsequent. The outcome of this litigation or additional federal regulatory actions may

result in two GHG compliance standards in the United States for the covered Model

Years: requirements to comply with more stringent CA Standards in California and the

Section 177 States; and less stringent SAFE Rule Part Two standards throughout the rest

of the United States. This regulatory uncertainty also subjects Ford to considerable

enforcement risk. Therefore, Ford enters into this agreement to ensure, among other

reasons, that it has the ability to (i) make long-term product planning decisions and

investments with confidence; (ii) satisfy market demand and production realities; and

(iii) comply with regulatory requirements during this time. This Settlement Agreement

offers Ford compliance flexibility and greater certainty to plan for its nationwide fleet.

The SAFE Rule Part One and SAFE Rule Part Two, and the related litigation, also entail

risks that California and the Section 177 States may not achieve the pollutant reduction

goals they expected to result from the CA Standards. Entry into this Settlement

Agreement is consistent with those goals, including goals set out in the AB 32 Scoping

Plan, and will deliver environmental benefits commensurate with those goals that may

not be realized in the absence of an agreement. Each Section 177 State has made

consistent judgments, reflected in the Enforcement Discretion Letters.

26.

Commitments. In light of the risks set forth above, Ford commits to comply with this

Settlement Agreement. Subject to the conditions and terms specified in this Settlement

Agreement, CARB commits to exercise its enforcement discretion to accept Ford’s

compliance with the terms of this Settlement Agreement as an agreed upon compliance

plan to achieve the objectives of the CA Standards for Model Year 2021 through Model

Year 2026. CARB further accepts this Agreement as a contractual commitment. During

the term of this Settlement Agreement, CARB will not enforce the CA Standards with

regard to Ford using available enforcement mechanisms, and CARB instead shall enforce

the terms of this Settlement Agreement solely in accordance with the enforcement

provisions and remedies herein. The Parties recognize that each Section 177 State is

issuing an Enforcement Discretion Letter that allows Ford to comply with this Agreement

to achieve the objectives of the CA Standards in each Section 177 State through Model

Year 2026. Through their respective Enforcement Discretion Letters, each Section 177

State committed to exercise enforcement discretion in lieu of enforcing the CA

Standards, as adopted, based on Ford’s entry into this Agreement. As a basis for entering

into this Agreement, Ford has relied on each Section 177 State’s representation that it

will exercise its enforcement discretion, as described in their respective Enforcement

Discretion Letters.

27.

No Effect on Federal Law or Law of Other States. The Parties to this Agreement do not

intend to, and this Agreement does not, alter either Party’s obligations under federal law,

or impose on Ford compliance obligations with respect to sales or related activities in any

individual state.

Agreed Substantive Terms

28.

Litigation Commitments. Ford, on behalf of itself, its parent companies, subsidiaries and

affiliates, will not challenge or seek to undermine this Agreement or CA Standards for

the current Model Year through Model Year 2026, or the corresponding standards in

Section 177 States. Ford will, to the extent possible under applicable trade association

bylaws, oppose participation in any such challenges by any trade associations to which it

belongs and avoid providing resources for any such challenges. Ford will not intervene

on the side of the United States, or file an amicus brief on the side of the United States, to

defend SAFE Rule Parts One or Two. This Agreement does not limit Ford’s rights as

intervenor in the SAFE Rule Part Two litigation to address the remedy in the event that a

court grants a petition for review. Each Party agrees to support the validity of this

Agreement in the event of third-party challenges.

29.

Greenhouse Gas Fleet Commitments: Ford agrees to maintain an average yearly

reduction in GHG emissions from its fleet sold nationwide (light-duty passenger cars,

light-duty trucks, and medium-duty passenger vehicles) for model years 2021 through

2026, in accordance with the following:

(A)

The target Carbon-Related Exhaust Emission (“CREE”) value for Ford’s fleet

shall be calculated separately for passenger cars and trucks utilizing the footprint

curves defined below.

(B)

Coefficients defining the footprint curves are identified in the tables below.

(i)

For vehicles with a footprint equal to or smaller than the footprint

identified in the Minimum Footprint column, the target CREE value in

units of grams per mile for the corresponding model year is the value

listed in the Minimum Footprint column.

(ii)

For vehicles with a footprint greater than the Minimum Footprint and less

than the Maximum Footprint, the target CREE value in units of grams per

mile for each vehicle for the corresponding model year shall be calculated

by multiplying the footprint of the vehicle by the value in column (a) and

adding the value in column (b) and rounding the result to the nearest tenth

of a gram per mile.

(iii)

For vehicles with a footprint equal to or greater than the footprint

identified in the Maximum Footprint column, the target CREE value in

units of grams per mile for the corresponding model year is the value

listed in the Maximum Footprint column.

Passenger Car Curve Coefficients

Model year

Minimum

Footprint

< 41.0 ft

(a)

(b)

Maximum

Footprint

> 56.0 ft

2021

157.0

3.84

-0.4

215.0

2022

151.0

3.70

-0.4

207.0

2023

146.0

3.56

-0.4

199.0

2024

140.0

3.43

-0.4

192.0

2025

135.0

3.30

-0.3

185.0

2026

130.0

3.18

-0.3

178.0

Light Truck Curve Coefficients

Model year

Minimum

Footprint

< 41.0 ft

(a)

(b)

Maximum Footprint

Greater than

or equal to:

(ft

)

Value

2021

195.0

4.28

19.8

73.5

335.0

2022

188.0

4.12

19.1

74.0

324.0

2023

181.0

3.97

18.4

74.0

312.0

2024

174.0

3.82

17.7

74.0

300.0

2025

168.0

3.68

17.0

74.0

289.0

2026

162.0

3.54

16.4

74.0

278.0

30.

Flexibilities to Promote Zero Emission Technology

(A)

To recognize the value of increased introduction of zero emission technologies

towards California’s and the Section 177 States’ long-term needs for

electrification of the fleet, Ford’s Zero Emission Technology vehicles shall utilize

a production multiplier for purposes of compliance calculations as follows:

(i)

For BEVs and FCEVs, a vehicle production multiplier of 2.0 shall be used

for MY2020 through MY2024, a multiplier of 1.75 shall apply for

MY2025, and a multiplier of 1.5 shall apply only for MY2026.

(ii)

For PHEVs, a vehicle production multiplier of 1.6 shall be used for

MY2020 through MY2024, a multiplier of 1.45 shall apply for MY2025,

and a multiplier of 1.3 shall apply only for MY2026.

(iii)

Ford shall clearly identify in its end of model year reporting for each

model year to CARB, which Zero Emission Technology vehicles Ford has

designated to use the production multiplier(s) for compliance calculations.

(iv)

The use of these production multipliers shall be limited by a “1 percent

cap.”

(1)

The cap shall be calculated as a cumulative cap representing the

total available credits that can be cumulatively earned from the

production multipliers for MY2020 through MY2026 vehicles.

(2)

Calculation of the cap

(a)

For MY2020 and for MY2021, the contribution to the

cumulative cap shall be calculated as 2.0 grams per mile for

each model year and converted to grams by multiplying by

Ford’s specific fleet for the number of passenger cars and light

trucks and the corresponding value for vehicle lifetime miles

of 195,264 and 225,865, respectively. For this calculation,

production multipliers for Zero Emission Technology vehicles

may not be utilized.

(b) For each model year from MY2022 through MY2026, the

contribution to the cumulative cap shall be calculated as the

difference between the model-year specific calculated fleet

average target value applicable to Ford per this Agreement and

a calculated fleet average for a target value using the curve

coefficients defined in Appendix A : Curve Coefficients that

represents 1 percent less in annual reductions than the target

value per this Agreement (

e.g.

, a target value reflecting 2.7

percent year over year reductions from MY2021 if the target

value in this Agreement reflected a 3.7 percent year over year

reduction from MY2021). The difference shall be converted

from grams per mile to grams by multiplying by Ford’s

specific fleet for the number of passenger cars and light trucks

and the corresponding value for vehicle lifetime miles of

195,264 and 225,865, respectively. For this calculation,

production multipliers for Zero Emission Technology vehicles

may not be utilized.

calculations for each individual model year from MY2020

through MY2026.

(d) The required calculation format (assuming for purposes of this

example that the Agreement requires a 3.7 percent year over

year reduction) is as follows. All values expressed in

megagrams shall be rounded to the nearest whole number.

𝐶𝐶𝐶𝐶𝐶𝐶

𝑀𝑀𝑀𝑀2020 𝑡𝑡ℎ𝑟𝑟𝑟𝑟 𝑀𝑀𝑀𝑀2021

෍

(

2.0 [𝑔𝑔𝑚𝑚𝑚𝑚

⁄

] 𝑥𝑥 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑥𝑥 𝑉𝑉𝑉𝑉ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀

)

𝑀𝑀𝑀𝑀2021

𝑀𝑀𝑀𝑀2020

𝐶𝐶𝐶𝐶𝐶𝐶

𝑀𝑀𝑀𝑀2022 𝑡𝑡ℎ𝑟𝑟𝑟𝑟 𝑀𝑀𝑀𝑀2026

෍

((𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 [𝑔𝑔𝑚𝑚𝑚𝑚]

⁄

@2.7% −𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 [𝑔𝑔𝑚𝑚𝑚𝑚

⁄

]@ 3.7%) 𝑥𝑥 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑥𝑥 𝑉𝑉𝑉𝑉ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀)

𝑀𝑀𝑌𝑌2026

𝑀𝑀𝑀𝑀2022

Where:

CAP

MY2020 thru MY2021

= Portion of the cumulative 1 percent cap from MY2020 and MY2021 vehicles

in grams.

CAP

MY2022 thru MY2026

= Portion of the cumulative 1 percent cap from MY2022 through MY2026

vehicles in grams.

Fleet Target Value = Production weighted fleet average standard from the footprint target

calculation for the specified year over year stringency, without the production multiplier applied to

Zero Emission Technology vehicles, in gram per mile units with no rounding applied to the result.

Volume = Total production of passenger cars or light trucks, without production multipliers

applied to Zero Emission Technology vehicles.

Vehicle Lifetime Miles = 195,264 miles for passenger cars and 225,865 miles for light trucks.

(3)

Tracking of credits used toward the cap

(a)

For each model year from MY2020 through MY2026, Ford

shall calculate the amount of credits earned from production

multipliers as specified below and apply those towards the

cumulative 1 percent cap as defined in Paragraph 30(A)(iv)(2),

above. Zero Emission Technology vehicles for which Ford

elected not to use the production multipliers shall be included

in this calculation in the same manner as other vehicles that do

not utilize production multipliers.

(b)

Calculation of credits. For each model year from MY2020

through MY2026, Zero Emission Technology vehicle credits

shall be calculated separately for passenger automobiles and

light trucks, using the following equations to effectively

subtract the credits calculated for the base fleet from the

credits calculated for the fleet with multipliers applied. No

credits are earned if the result is a negative value. All values

expressed in megagrams shall be rounded to the nearest whole

number.

𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖𝑜𝑜𝑜𝑜 𝑇𝑇𝑇𝑇𝑇𝑇ℎ𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛 𝑉𝑉𝑉𝑉ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶[𝑀𝑀𝑀𝑀] = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶

𝑎𝑎𝑎𝑎𝑎𝑎

−𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶

𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏

(i)

When calculating the

Credits

adj

for Zero Emission

Technology vehicles from production multipliers for

MY2020 through MY2026, Ford may elect to calculate

the credits based on either the Method 1 or Method 2

formula below.

Method 1 formula:

𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶

𝑎𝑎𝑎𝑎𝑎𝑎

[𝑀𝑀𝑀𝑀] =

ቆ

൫𝐹𝐹

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉

𝑎𝑎𝑎𝑎𝑎𝑎

−𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃

𝑎𝑎𝑎𝑎𝑎𝑎

൯

𝑥𝑥 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉

𝑎𝑎𝑎𝑎𝑎𝑎

𝑥𝑥 𝑉𝑉𝑉𝑉ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖𝑚𝑚𝑚𝑚 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀

1,000,000

ቇ

Where:

Fleet Target Value

adj

= Production weighted fleet average standard from the footprint target

calculation for the specified year, with the production multiplier applied to designated Zero

Emission Technology vehicles, in gram per mile units, with no rounding applied to the result.

Performance

adj

= Production weighted fleet average CREE with the production multiplier applied

to designated Zero Emission Technology vehicles in the CREE value calculation in gram per

mile units with no rounding applied to the result.

Volume

adj

= Total production of passenger cars or light trucks with the production multiplier

applied to designated Zero Emission Technology vehicles, with no rounding applied to the

result.

Vehicle Lifetime Miles = 195,264 for passenger automobiles and 225,865 for light trucks

Method 2 formula:

𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶

𝑎𝑎𝑎𝑎𝑎𝑎

[𝑀𝑀𝑀𝑀] =

ቆ

൫𝐹𝐹

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉−𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃

𝑎𝑎𝑎𝑎𝑎𝑎

൯

𝑥𝑥 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑥𝑥 𝑉𝑉𝑉𝑉ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀

1,000,000

ቇ

Where:

Fleet Target Value = Production weighted fleet average standard from the footprint target

calculation for the specified year, without the production multiplier applied to Zero Emission

Technology vehicles, in gram per mile units, with no rounding applied to the result.

Performance

adj

= Production weighted fleet average CREE with the production multiplier applied

to designated Zero Emission Technology vehicles in the CREE value calculation in gram per

mile units with no rounding applied to the result.

Volume = Total production of passenger cars or light trucks, without the production multiplier

applied to Zero Emission Technology vehicles.

Vehicle Lifetime Miles = 195,264 for passenger automobiles and 225,865 for light trucks.

(ii)

Except as noted below for MY2020 and MY2021, for

both Method 1 and Method 2, base fleet credits shall be

calculated in megagrams using the following equation and

rounding the result to the nearest whole number.

𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶

𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏

[𝑀𝑀𝑀𝑀] =

ቆ

(𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉−𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃) 𝑥𝑥 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑥𝑥 𝑉𝑉𝑉𝑉ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀

1,000,000

ቇ

Where:

Fleet Target Value = Production weighted fleet average standard from the footprint target calculation

for the specified year, without the production multiplier applied to Zero Emission Technology

vehicles, in gram per mile units, with no rounding applied to the result.

Performance = Production weighted fleet average CREE, without the production multiplier applied to

Zero Emission Technology vehicles, in gram per mile units, with no rounding applied to the result.

Volume = Total production of passenger cars or light trucks, without the production multiplier applied

to Zero Emission Technology vehicles.

Vehicle Lifetime Miles = 195,264 for passenger automobiles and 225,865 for light trucks.

To determine the amount of credits to be added to Ford’s starting

Agreement Balance and to be applied towards the cumulative 1

percent cap for MY2020, base fleet credits shall be calculated using

the

Credits

adj

equation identified for Method 1 or 2 with the

applicable production multipliers from the 2018 Federal Program

rather than the equation specified above for

Credits

base

. Ford shall

utilize the same method (i.e., Method 1 or 2) that was used to

calculate

Credits

adj

for MY2020 with the production multipliers from

this Agreement.

To determine the total Zero Emission Technology credits to be used

in the calculation of model year compliance and the Agreement

Balance for MY2021, base fleet credits shall be calculated using the

equation specified above for

Credits

base

with no production

multipliers applied.

To determine the amount of credits to be applied towards the

cumulative 1 percent cap for MY2021, base fleet credits shall be

calculated using the

Credits

adj

equation identified for Method 1 or 2

with the applicable production multipliers from the 2018 Federal

Program rather than the equation specified above for

Credits

base

. Ford

shall utilize the same method (i.e., Method 1 or 2) that was used to

calculate

Credits

adj

for MY2021 with the production multipliers from

this Agreement.

To determine the total Zero Emission Technology credits to be used

in the calculation of model year compliance and the Agreement

Balance for MY2022 through MY2026 and to be applied towards the

cumulative 1 percent cap for MY2022 through MY2026, base fleet

credits shall be calculated using the equation specified above for

Credits

base

with no production multipliers applied.

(v)

For Zero Emission Technology vehicles produced by Ford in excess of the

cumulative 1 percent cap:

(1)

For MY2020 BEVs and FCEVs, a production multiplier of 1.75

and for MY2021 BEVs and FCEVs, a production multiplier of 1.5

shall be used for compliance calculations.

(2)

For MY2020 PHEVs, a production multiplier of 1.45 and for

MY2021 PHEVs, a production multiplier of 1.3 shall be used for

compliance calculations.

(3)

For MY2022 through MY2026 BEVs, FCEVs, and PHEVs, no

production multiplier (i.e., a value of 1.0) shall be used.

(vi)

For compliance calculations, the applicable Zero Emission Technology

production multipliers are only used in the calculation of credits from Zero

Emission Technology vehicles and may not be used in the calculation of

Ford’s fleet target value or Ford’s fleet performance CREE value.

(B)

Zero Emission Technology vehicles for MY2020 through MY2026 shall utilize a

value of 0 grams per mile to represent the emissions of FCEVs and BEVs and the

proportion of electric operation of PHEVs that is derived from electricity that is

generated from sources that are not onboard the vehicle.

(i)

For BEVs and FCEVs, 0 grams per mile shall be used as the CREE value

for the vehicle’s performance in compliance calculations.

(ii)

For PHEVs, 0 grams per mile shall be used as the CREE value to

represent the proportion of electric operation of a vehicle that is derived

from electricity that is generated from sources that are not onboard the

vehicle. For ease of understanding, such proportion of operation shall be

calculated in accordance with the 2018 Federal Program.

31.

Air Conditioning (A/C) Related Credits and Off-Cycle Credits

(A)

Except as noted in Paragraph 31(A)(vi) below, for all requested A/C and off-cycle

credits:

(i)

Ford should notify CARB of its intent to use such credits in its pre-model

year report submitted no later than December 31 of the calendar year two

years before the model year;

(ii)

Ford may submit such requests and supporting data and documentation

prior to or during the applicable model year to facilitate earlier review and

approval by CARB; and

(iii)

Ford shall submit such requests and supporting data and documentation

for review and approval by CARB no later than the submittal of the end of

model year report by May 15 following the model year. Submitted data

shall include identification and sales volumes of the vehicle model(s) and

configurations that have specific technologies applied and the credits

claimed for each technology along with documentation supporting the

claimed credit value for each technology.

(iv)

In general, approved credits are valid through the MY2026. Ford will be

required to newly apply for and CARB will determine an appropriate

value for credits on MY2027 and later vehicles. Where specifically noted,

credits may be approved on a more limited basis and/or conditioned on

Ford collecting and submitting additional data from actual vehicle

operation and/or testing to support the approved credits.

(v)

Except as specifically noted in this Agreement, the provisions of the 2018

Federal Program apply for determining credits for A/C leakage and

efficiency improvements, off-cycle technologies, and full-size pickup

hybrid technology as well as exhaust emission performance CO

equivalent credits or debits from N

O and/or CH

emissions.

(vi)

For A/C and off-cycle technologies previously granted credits to Ford by

EPA before January 1, 2020 through explicit approval or by EPA for

MY2020 or earlier via acceptance of Ford’s end of model year report, and

where EPA continues to grant the identical credit values to Ford, CARB

shall grant Ford the same credit values subject to the same, if any,

limitations by EPA (

e.g.

, the inclusion or exclusion of a specific credit

towards a maximum cap for that technology).

(vii)

All MY2021 and later model year credits are subject to CARB acceptance

in accordance with this Agreement and the established approval criteria

and practice in the Federal Program. In its review of credits for approval,

the Parties intend that CARB will remain aligned with EPA to the extent

possible in accordance with good engineering judgment and technical

rationale. However, where appropriate to promote faster adoption of new

technologies, CARB may independently approve credits prior to

acceptance by EPA.

(B)

For MY2020 through MY2026 off-cycle credits that Ford selects from predefined

values assigned in the 2018 Federal Program:

(i)

The maximum allowable decrease in Ford’s fleet emissions from the use

of such credits may not exceed 15.0 grams per mile.

(ii)

For thermal control technologies, the existing caps of 3.0 grams per mile

for passenger cars and 4.3 grams per mile for light trucks shall apply on a

per vehicle basis (

e.g.

, no individual car or truck shall receive credits in

excess of the cap).

(iii)

The predefined values available for use by Ford will also include:

(1)

A credit value of 1.1 grams per mile is available for passenger cars

and light trucks that utilize an advanced A/C compressor with an

improved efficiency relative to fixed-displacement compressors

derived from improved internal valve systems that optimize the

internal refrigerant flow across the range of compressor operator

conditions through the addition of a variable crankcase suction

valve. Except as noted in Paragraph 31(E)(ii) below, these credits

shall be counted towards the A/C efficiency per vehicle caps of 5.0

and 7.2 grams per mile for passenger cars and light trucks,

respectively.

(2)

A credit value is available for passenger cars and light trucks that

utilize a high efficiency alternator. The credit value shall be 0.16

grams per mile for each one percent of improvement in Verband

der Automobilindustrie (“VDA”) efficiency above a baseline of 67

percent efficiency (

e.g.

, if a high efficiency alternator achieves 69

percent VDA efficiency, the credit value would be 0.32 grams per

mile calculated as (69 – 67) * 0.16 = 0.32). VDA efficiency is the

ratio of the alternator output power to the power supplied to the

alternator, as measured using the VDA efficiency measurement

methodology and expressed as a whole number percent from 68 to

100. The Parties agree that further detail regarding these

calculations is provided at EPA-HQ-OAR-2018-0283-0706

“Potential Off-cycle Menu Credit Levels for High Efficiency

Alternators and Advanced Air Conditioning Compressors,” memo

from EPA (Aug. 1, 2018).

(C)

For MY2021 through MY2026 off-cycle credits that Ford utilizes the 5-cycle test

method to determine the amount of the credit:

(i)

Ford shall provide test data showing the 5-cycle and 2-cycle combined

city/highway test results for with and without the off-cycle credit

technology active.

(ii)

The amount of off-cycle credit shall be the difference of the 5-cycle

testing with and without the technology active less the difference of the 2-

cycle testing with and without the technology active to ensure the credit

reflects an incremental amount above and beyond what is already

accounted for in the 2-cycle testing.

(D)

For MY2021 through MY2026 off-cycle credits that Ford requests CARB

approval of through a special test procedure to quantify the credit:

(i)

Upon receipt of a completed application with all confidential business

information redacted, CARB may provide public notice to interested

parties of receipt of such an application and make it available for review

and comment. CARB may provide at least 30 days of public review and

identify a method for parties to submit their comments. After the

comment period, the applicant and/or CARB may make modifications as

needed to address relevant issues before issuing a final approval. A

version of the final approval, with any confidential business information

redacted, may also be made publicly available by CARB for reference.

(ii)

For identical technologies previously approved by CARB during the term

of this Agreement or approved by EPA prior to January 1, 2020, Ford may

utilize the identical special test procedure/methodology as was previously

used to determine the appropriate credit value for its specific vehicle(s). If

Ford elects this option, CARB may omit the notice and comment

procedure of Paragraph 31(D)(i) above.

(iii)

For thermal control technologies, any credit determined under the special

test procedures shall be applied towards, and may not exceed, a maximum

value for the sum of all applied thermal control technologies of 3.0 grams

per mile for passenger cars and 4.3 grams per mile for light trucks.

(E)

For MY2021 through MY2026 credits related to air conditioning system

efficiency improvements:

(i)

If Ford uses predefined values or 5-cycle testing to demonstrate the credit

value of the applicable technology, the maximum credits available are 5.0

grams per mile for a passenger car and 7.2 grams per mile for a light truck

and shall apply on a per vehicle basis (

e.g.

, no individual car or truck shall

receive credits in excess of the cap).

(ii)

In general, the maximum credit limits of 5.0 grams per mile for a

passenger car and 7.2 grams per mile for a light truck also apply to and

include technologies where Ford uses special testing approved by CARB

to demonstrate the credit value of the applicable technology. However, if

Ford performs such special testing on a vehicle or system that has already

met the credit limit by utilization of other technologies and demonstrates

that the added technology still provides additional measurable GHG

reductions, credits beyond the limit commensurate with the benefits will

be granted by CARB.

(F)

Additional provisions for MY2021 through MY2026 vehicles:

(i)

To support the development of streamlined application processes for

MY2027 and later vehicles:

(1)

Applications to determine the preliminary credit value for eligible

off-cycle technologies on MY2021 through MY2026 vehicles may

be submitted by automotive suppliers. However, only applications

accompanied by a letter of endorsement from Ford or another

manufacturer subject to a similar agreement will be considered for

approval by CARB.

(2)

Applications by suppliers may be based on the 5-cycle testing

method or the special testing method to determine the appropriate

credit value. Depending on the technology, the preliminary credit

value may be an absolute value or a scaled value based on a

parameter determined to be correlated to its benefit.

(3)

For technologies assigned a preliminary credit value from an

approved supplier application, Ford shall request CARB approval

of the use of the technology. CARB shall approve the use of the

credit value upon Ford providing sufficient information to confirm

the implementation of the technology is consistent with the

supplier’s application.

(4)

CARB may approve such applications on a limited basis by model

year and vehicle application and/or require testing or other data

collection from the supplier or Ford to verify the appropriateness

of the credit value.

(ii)

To support the development of appropriate credit values and testing

methodologies for future model year vehicles:

(1)

In order for MY2022 through MY2026 BEVs and/or FCEVs to

utilize the full value of A/C or off-cycle predefined credits (other

than A/C leakage or solar panel credits), Ford shall submit a plan

for CARB review and approval on how it will gather activity data

and/or test data to support the future establishment of MY2027 and

later Zero Emission Technology specific credit values. CARB

shall approve the requested credit and plan upon determining the

proposal uses good engineering judgment to provide a reasonable

amount of data specific to the technology and its relative benefits

on a Zero Emission Technology vehicle across a variety of

vehicles and/or in-use operation, as appropriate (

e.g

., by

demonstrating the improvement in vehicle efficiency (Watt-hour

per mile) and using a value for electricity generation in grams CO

per Watt-hour to calculate an appropriate gram per mile value, by

collecting representative data on in-use vehicles to refine future

assumptions related to usage of the technology, etc.).

(2)

In order for MY2022 through MY2026 PHEVs to utilize the full

value of A/C or off-cycle predefined credits (other than A/C

leakage or solar panel credits), Ford shall be required to submit a

plan for CARB review and approval on how it will submit PHEV

activity data to support the future establishment of MY2027 and

later Zero Emission Technology specific credit values. Such data

shall be limited to data that Ford will be collecting for other

purposes and/or otherwise have available for PHEVs for which

Ford is requesting the credit and need only include the data most

relevant to informing the usage or operation of the applicable off-

cycle technology in PHEVs across a variety of vehicles and/or in-

use operation, as appropriate (

e.g.

, data on the fraction of vehicle

miles traveled using electric propulsion versus gasoline powered

propulsion, data on the fraction of trips that have an engine start,

etc.). CARB may not require Ford to conduct special testing or

implement additional parameters or data collection methods,

however, Ford may voluntarily propose to use test data or a

combination of test data and activity data as part of its plan to

satisfy this requirement. CARB shall approve the requested credit

and plan upon determining the proposal uses good engineering

judgment to provide a reasonable amount of the available data

(and/or test data as described above) specific to the applicable

PHEV(s).

(3)

Off-cycle credits may be approved on a limited model year basis

for technologies where the GHG benefits depend on the behavior

of the driver (

e.g.

, driver coaching, haptic pedals) only when:

(a)

It is possible, on the basis of reasonable evidence, to make

assumptions about average driver behavior to calculate the

likely impact and associated credit value; and

(b)

Ford agrees to perform additional data collection and testing to

allow for verification of the behavior on actual vehicles

utilizing the technology and to be used in establishment of

more appropriate credit values and testing methodologies for

subsequent model year vehicles.

(iii)

Ineligible technologies

(1)

Off-cycle credits may not be approved for technologies that are

integral or inherent to the basic vehicle design, such as engine,

transmission, mass reduction, passive aerodynamic design, and tire

technologies. Technologies installed for non-off-cycle emission-

related reasons or that otherwise would have been installed for

purposes of reducing emissions (directly or indirectly) over the test

cycles for compliance with the GHG standards are also not eligible

as they would be considered part of the baseline vehicle design.

Off-cycle credits may not be approved for crash-avoidance

technologies, safety critical systems or systems affecting safety-

critical functions, or technologies designed for the purpose of

reducing the frequency of vehicle crashes. Off-cycle credits may

not be earned for technologies installed on a motor vehicle to attain

compliance with any vehicle safety standard.

(2)

Waste heat, as used for active warm-up off-cycle credits, refers to

heat that cannot be recovered by any other component or system

on the vehicle and does not include systems that preferentially or

necessarily first use heat to warm the engine oil or interior cabin

before utilization to warm up the engine or transmission.

(3)

With the exception of A/C-related technologies for cooling the

cabin or occupants, technologies that have predefined credit

values, and technologies for Zero Emission Technology vehicles,

off-cycle credits may not be granted for non-powertrain or non-

propulsion technologies including technologies inherent to the

design of occupant comfort and entertainment features such as

passenger or cabin heating, interior displays or components,

infotainment components, etc. For purposes of this paragraph,

technologies that are designed to recapture energy created by the

powertrain that otherwise would be lost (

e.g.

, through heat or

mechanical friction during deceleration or braking events) will be

considered powertrain technologies.

(4)

For Zero Emission Technology vehicles, ineligible technologies

will include displays, infotainment systems, and other items not

directly related to propulsion or battery conditioning.

32.

Certification. Prior to certification, Ford agrees to provide CARB with all emission data

necessary to calculate CREE levels for each emission data vehicle representing a test

group submitted to CARB for certification to CARB’s criteria pollutant emission

standards (title 13, CCR § 1961.2).

33.

Compliance.

(A)

Unless it is otherwise specified in this Agreement that provisions of the 2018

Federal Program apply, EPA changes during the term of this Agreement in the

Federal Program regulations, including but not limited to test procedures and

calculation methodologies, will automatically apply for purposes of this

Agreement unless either Party notifies the other Party of its belief that such

changes will have a material impact on the stringency of the GHG commitments.

Following such notification, Ford and CARB shall in good faith confer in

accordance with Paragraph 35 to reach a mutually acceptable resolution. The

Party seeking a departure from changes to the Federal Program shall 1) explain

the basis for its position that the changes made by EPA will have a material

impact on the stringency of the GHG commitments, and 2) propose a technical

modification in accordance with Paragraph 35. It is the intent of the Parties that

any resolution to address a material impact on stringency due to changes EPA

makes in the Federal Program regulations will minimize disruption or burdens on

Ford’s implementation of testing and related administrative requirements. Except

where the 2018 Federal Program is specified in this Agreement and for changes to

the Federal Program for which a Party provides notification under this paragraph,

the Parties intend that Ford will be able to utilize the same test procedures and

calculation methodologies to generate the required data for compliance with this

Agreement and the Federal Program, including but not limited to any revisions

related to the phase-in of the use of E10 test fuel resulting from EPA’s Vehicle

Test Procedures Adjustments for Tier 3 Certification Test Fuel rulemaking,

proposed at 85 Fed. Reg. 28,564 (May 13, 2020).

(B)

Compliance under this Agreement is determined by first calculating compliance

based on CREE performance relative to the standard without the use of any Zero

Emission Technology multipliers. Air conditioning-related, off-cycle, full-size

pickup, and Zero Emission Technology vehicle credits as well as applicable debits

for N

O and/or CH

emissions are then separately calculated and added to the

calculated CREE performance credits or debits. Zero Emission Technology

vehicle credits shall be calculated for each model year as specified in Paragraph

30(A)(iv)(3)(b) of this Agreement.

(C)

No later than May 15 following the model year, Ford shall provide CARB with all

data and technical documentation to support a calculation of compliance for the

applicable model year including:

(i)

Sales and footprint data to calculate Ford’s target CREE fleet value.

(ii)

Sales, vehicle performance data, and supporting information for all credits

requested for the model year to calculate Ford’s achieved fleet CREE

performance.

(iii)

Sales data and fleet footprint and performance data to calculate Ford’s

Zero Emission Technology 1 percent cumulative cap and the number of

credits earned towards the cap for the current and previous model years. If

the cumulative credits claimed as earned by Ford exceed the 1 percent cap

as calculated solely for the current and previous model years, the

submitted data must also include an estimate of the cumulative portion of

the cap projected to be earned in future model years by Ford.

(iv)

The “Agreement ABT Calculator” that was developed jointly by the

Parties, as may be updated from time to time upon written agreement of

the Parties, populated with data for the applicable model year to support

Ford’s calculation of compliance and tracking of credits and deficits.

34.

Banking of Credits and Deficits.

(A)

Agreement Balance.

(i)

Starting Balance: Ford will enter the Agreement with a value of credits (or

deficits) in megagrams of CO

for its Agreement credit balance equal to its

2018 Federal Program credit balance as calculated at the conclusion of

MY2020 (for MY2011 through MY2020) with the following adjustments:

(1)

Subject to the limits of the “1 percent cap” per Paragraph

30(A)(iv), the advanced technology vehicle multiplier for MY2020

BEVs and FCEVs will be 2.0 and 1.6 for MY2020 PHEVs in lieu

of 1.75 and 1.45, respectively; and

(2)

The cap for off-cycle credits based on predefined (menu) values

will be 15 g/mi for MY2020 such that if Ford had exceeded the 10

g/mi cap in MY2020 and not been awarded full benefit of the

applied technologies, an adjustment would be made to its credit

balance to reflect the higher cap.

(ii)

Calculation of Agreement Balance. For MY2021 through MY2026,

Ford’s Agreement credit balance shall be calculated per the requirements

of this Agreement.

(1)

As specified in Paragraph 33(B) above, compliance is calculated

first based on actual performance and then all earned credits (

e.g.

A/C, off-cycle) per this Agreement for the specific model year for

which Ford is subject to GHG fleet commitments under this

Agreement.

(2)

If Ford has a surplus (credits earned beyond its obligation) after the

model year compliance calculation, those credits shall be added to

the Agreement Balance in accordance with the averaging, banking,

and trading (“ABT”) provisions of the 2018 Federal Program.

(3)

If Ford has a deficit after the model year compliance calculation,

then those deficits shall be added to the Agreement Balance in

accordance with the ABT provisions of the 2018 Federal Program.

(4)

If Ford participated in any Agreement credit transactions (

e.g.,

sale, purchase) or used Agreement credits to satisfy Agreement

Balance deficits, then those transactions and usage shall be

recorded in the Agreement Balance in accordance with ABT rules.

Except as specified in Paragraph 34(D)(iv)(3) for Federal Program

credits acquired from ZEV-only manufacturers, Federal Program

credit transactions for model years subject to standards specified in

this Agreement may not be recorded in the Agreement Balance.

Regarding Federal Program credits earned from model years after

the expiration or early termination of this Agreement and used to

resolve Ford’s Agreement Balance deficits carried forward into

model years after the expiration or early termination of this

Agreement in accordance with Paragraph 34(C)(iv), such Federal

Program credits shall be recorded in the Agreement Balance.

(B)

Emissions Benefit Balance.

(i)

Purpose: To ensure the integrity of the emission benefits of this

Agreement, Ford shall be required to achieve a net zero or positive credit

balance and resolve any incurred deficits through MY2031 (based on the

resolution of Ford’s obligations in accordance with Paragraph 34(B)(vi)),

and possibly through as late as MY2034 (based on Ford’s carry-forward of

deficits in accordance with Paragraphs 34(C)(iii), and 34(C)(iv)), in a

separate Emissions Benefit Balance that Ford tracks and reports to CARB.

(ii)

Starting Balance: The starting balance for the Emissions Benefit Balance

shall be equal to Ford’s starting Agreement Balance.

(iii)

Calculation of Emissions Benefit Balance through MY2026. For MY2021

through MY2026, Ford’s Emissions Benefit Balance will be calculated as

follows:

(1)

Add in, per ABT rules, credits (or deficits) determined from the

Agreement model year compliance calculation for MY2021.

(2)

Add in, per ABT rules, Agreement credit transactions that occurred

between end of the previous model year and end of MY2021.

(3)

Add in, per ABT rules except as noted below in Paragraph

34(B)(iii)(4), applicable Federal Program credit transactions that

occurred between end of the previous model year and end of

MY2021. For this requirement, applicable transactions only

include purchase and sale transactions of Federal Program credits.

Federal Program credits for model years subject to standards

specified in this Agreement earned by Ford or used by Ford to

resolve Federal Program deficits have no impact on the Emissions

Benefit Balance.

(4)

Except for Federal Program credits acquired from ZEV-only

manufacturers in accordance with Paragraph 34(D)(iv)(3),

MY2021 through MY2026 Federal Program credits acquired by

Ford and recorded as an applicable transaction in the Emissions

Benefit Balance per Paragraph 34(B)(iii)(3) may not be utilized to

resolve MY2024, MY2025, and/or MY2026 Emissions Benefit

Balance deficits carried forward in accordance with Paragraph

34(C)(iii).

(5)

Repeat “Calculation of Emissions Benefit Balance through

MY2026” above at the end of each successive model year for

MY2022 through MY2026, substituting the applicable model year

for MY2021.

(iv)

Calculation of Emissions Benefit Balance post MY2026 or Earlier

Termination. Subject to the resolution of Ford’s Emissions Benefit

Balance obligations in accordance with Paragraph 34(B)(vi), for MY2027

and subsequent model years (or substituting earlier model years in this

paragraph as appropriate in the case of early termination of this

Agreement pursuant to Paragraph 35), Ford’s Emissions Benefit Balance

will be calculated as follows:

(1)

At the end of MY2027, add in, per ABT rules, Agreement credit

transactions that occurred between end of the previous model year

and end of MY2027 only for transactions involving MY2022

through (including) MY2026 vintage Agreement credits.

(2)

At the end of MY2027, add in, per ABT rules, Federal Program

credit transactions and Federal Program credits that were used by

Ford to satisfy any Federal Program deficits that occurred between

end of the previous model year and end of MY2027 only for

transactions or usage involving MY2022 through (including)

MY2026 vintage Federal Program credits.

(3)

At the end of MY2027, if any MY2027 Federal Program credits

were used by Ford to resolve Ford’s Agreement Balance deficit

carried forward from MY2024, MY2025, and/or MY2026 in

accordance with Paragraph 34(C)(iv), add in, per ABT rules,

credits (or deficits) determined from the Federal Program

compliance for MY2027.

(4)

At the end of MY2027, add in, per ABT rules except as noted in

Paragraph 34(B)(iv)(5), Federal Program credit transactions and

Federal Program credits that were used by Ford to satisfy any

Federal Program deficits of Ford that occurred between end of the

previous model year and end of MY2027 only for transactions

involving the same model year vintage credits as those used to

resolve an Agreement Balance deficit carried forward from

MY2024, MY2025, and/or MY2026 in accordance with Paragraph

34(C)(iv) (

e.g.

, include MY2027 and MY2028 vintage credit

transactions and usage if both MY2027 and MY2028 Federal

Program credits were used to resolve Ford’s Agreement Balance

deficits).

(5)

Except for Federal Program credits acquired from ZEV-only

manufacturers in accordance with Paragraph 34(D)(iv)(3),

MY2021 through MY2026 Federal Program credits acquired by

Ford and recorded as an applicable transaction in the Emissions

Benefit Balance per Paragraph 34(B)(iii)(3) may not be utilized to

resolve MY2027 or subsequent Emissions Benefit Balance deficits

incurred due to Federal Program compliance, credit transactions, or

usage recorded in accordance with Paragraphs 34(B)(iv)(3) and

34(B)(iv)(4).

(6)

Repeat “Calculation of Emissions Benefit Balance post MY2026

or Earlier Termination” at the end of each successive model year

for latest applicable year (possibly as late as MY2034), substituting

the applicable model year for MY2027.

(v)

Federal Program credits that Ford may permanently retire or otherwise

remove without being used from its Federal Program credit balance may

be used towards satisfying Ford’s Emissions Benefit Balance obligations

in lieu of tracking such credits in the Emissions Benefit Balance through

to their expiration. Ford and CARB may agree that Emissions Benefit

Balance obligations satisfied in this manner will terminate Ford’s

corresponding Emissions Benefit Balance reporting requirements.

(vi)

Recognizing the uncertainty of regulatory requirements applicable

following the model years covered in the Agreement, Ford and CARB

desire to maintain the integrity of the environmental benefits of this

Agreement while not disadvantaging Ford with regard to future regulatory

compliance obligations. Therefore, prior to the expiration or upon early

termination of this Agreement, Ford and CARB shall in good faith confer

to reach mutually acceptable agreement with respect to Ford’s Emissions

Benefit Balance obligations. In seeking to reach such an agreement, Ford

and CARB shall consider all relevant and equitable circumstances,

including but not limited to the following:

(1)

the important environmental benefits of this Agreement, as

described in Paragraph 25 above, which the Parties agree were a

primary basis for CARB’s decision to enter into the Agreement;

(2)

the regulatory requirements known or likely to apply to Ford in the

model years following the model years covered by this Agreement;

and

(3)

the extent to which Ford would be harmed, relative to other

manufacturers who chose not to enter into a similar agreement, if

Ford is restricted, in whole or in part, by its Emissions Benefit

Balance obligations.

Ford and CARB shall seek to reach an agreement that reflects an appropriate balancing of

the relevant and equitable considerations. If Ford and CARB are unable to reach a

mutually acceptable understanding regarding Ford’s Emissions Benefit Balance

obligations, the issue shall be the subject of Dispute Resolution under this Agreement.

Both Ford and CARB agree that the factors set forth in this subparagraph shall be the

basis upon which Dispute Resolution shall be conducted.

(C)

Tracking of Credits within Credit Balances.

(i)

Within the Agreement Balance and the Emissions Benefit Balance, credits

(and debits) shall be tracked based on the model year in which they were

earned, per ABT rules.

(ii)

Credits shall be subject to a five-year carry forward and three-year carry

back provision. Credits may be used by Ford to satisfy deficits incurred in

the prior three model years or used or traded by Ford for use in the

subsequent five model years. Credits not used within five model years

shall expire.

(iii)

If Ford has a deficit after the model year compliance calculation, then

unexpired credits earned in prior model years or acquired through trade

may be utilized to satisfy its obligation. Except as noted below, if Ford

still has a deficit after utilizing all prior model year credits and acquired

credits, then it may carry forward the credit deficit up to and including the

third model year after the model year in which the deficit was incurred.

To facilitate alignment between the Agreement Balance and the Emissions

Benefit Balance, if Ford has an Agreement Balance deficit being carried

forward from MY2024, MY2025, and/or MY2026, Ford shall also carry

forward an equivalent MY2024, MY2025, and/or MY2026 deficit in the

Emissions Benefit Balance (or likewise, as appropriate, for earlier model

years in the case of early termination of this Agreement), in lieu of

utilizing all prior model year credits and acquired credits in the Emissions

Benefit Balance to resolve some or all of the deficits before carrying

forward the remaining deficits.

(iv)

Agreement Balance and/or Emissions Benefit Balance deficits carried into

model years after expiration or early termination of this Agreement may

be resolved by applying Federal Program credits generated in accordance

with the ABT provisions of the 2018 Federal Program for those model

years after expiration or early termination of this Agreement. Such

Federal Program credits shall be recorded as a credit transaction (credits

acquired) in Ford’s Agreement Balance and Emissions Benefit Balance

per ABT rules and tracked accordingly.

(v)

Deficits not satisfied within the three model year carry forward period

shall constitute noncompliance with this Agreement.

(D)

Credit Trading.

(i)

Credits in Ford’s Agreement Balance may be traded (or deficits resolved)

in accordance with the trading provisions of the 2018 Federal Program and

the additional credit trading restrictions described in this Agreement.

(ii)

Credits in the Emissions Benefit Balance may not be directly traded by

Ford and credits may only be added or removed in accordance with

Paragraph 34(B) above.

(iii)

Trading within Agreement. Except as noted in Paragraph 34(D)(iv)(3)

below for Federal Program credits acquired from ZEV-only

manufacturers, Ford may only trade credits earned under this Agreement

for its Agreement Balance from/to other manufacturers who have executed

an agreement similar to this Agreement. CARB’s Executive Officer will

determine if any such agreements exist and provide in writing a

determination to all parties to any such agreements as to which

manufacturers may trade credits under this Agreement or similar

agreements.

(iv)

Transferring Credits into Agreement.

(1)

Earned or purchased MY2020 or earlier Federal Program credits

may be used to meet Ford’s commitments in this Agreement.

(2)

Except as noted below for ZEV-only manufacturers and as

specified in Paragraph 34(C)(iv) for Federal Program credits used

to resolve any outstanding deficits after the expiration or early

termination of this Agreement, MY2021 and subsequent credits

earned under the Federal Program by Ford or any other

manufacturer may not be used to meet Ford’s commitments in this

Agreement for its Agreement Balance.

(3)

MY2021 through MY2026 Federal Program credits earned by a

ZEV-only manufacturer and acquired by Ford through a Federal

Program credit transaction may be used to meet Ford’s

commitments in this Agreement subject to the following:

(a)

Only Federal Program credits directly earned by the ZEV-only

manufacturer are eligible. For purposes of this requirement,

ZEV-only manufacturer means a vehicle manufacturer that

exclusively offers BEVs and/or FCEVs for sale in the United

States.

(b)

Adjustment of Federal Program Credits transferred into

program.

(i)

MY2020 and earlier credits earned by a ZEV-only

manufacturer and acquired by Ford shall be recorded as a

credit transaction (credits acquired) in Ford’s Agreement

Balance and Emissions Benefit Balance per ABT rules

without adjustment.

(ii)

For model years subject to standards specified in this

Agreement, credits earned under the SAFE Rule Part Two

by a ZEV-only manufacturer and acquired by Ford shall

be adjusted before being recorded as a credit transaction

(credits acquired) in Ford’s Agreement Balance and

Emissions Benefit Balance per ABT rules. To adjust

credits acquired, the credits shall be reduced by the

following formula before being added to Ford’s

Agreement Balance and Emissions Benefit Balance:

𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶

𝑎𝑎𝑎𝑎𝑎𝑎

[𝑀𝑀𝑀𝑀] = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶

𝑎𝑎𝑎𝑎𝑎𝑎

[𝑀𝑀𝑀𝑀] 𝑥𝑥 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴_𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹

𝑀𝑀𝑀𝑀

Where:

Credits

adj

= Credit amount, in megagrams, after adjustment.

Credits

acq

= Acquired credit amount, in megagrams, before adjustment.

Adjust_Factor

= Adjustment factor specific to the model year of the acquired credits from the

following table:

MY2021

MY2022

MY2023

MY2024

MY2025

MY2026

Adjustment Factor

0.96

0.95

0.94

0.93

0.92

0.91

(iii) If the Federal Program is further amended after the SAFE

Rule Part Two, Federal Program credits earned by a ZEV-

only manufacturer for model years subject to standards

specified in this Agreement and acquired by Ford shall be

adjusted to reflect the relative difference in effective

stringency between the Agreement and the Federal

Program before being recorded as a credit transaction

(credits acquired) in Ford’s Agreement Balance and

Emissions Benefit Balance per ABT rules. Ford and

CARB, in accordance with Paragraph 35, shall in good

faith confer to determine the appropriate adjustment. In

determining such an adjustment, the Parties acknowledge

that the adjustment factor specified in this Agreement was

derived from the difference in credits earned by a ZEV

under the Agreement (in g/mi) versus credits earned under

the Federal Program. Assumptions include a fleet with an

equal share of passenger cars and light trucks, and

industry sales-weighted average passenger car and light

truck footprints of 46.2 and 53.8 square feet, respectively.

(4)

Credits earned under a CA and/or Section 177 State program based

solely on sales in CA and/or the Section 177 State(s) may not be

used to meet Ford’s commitments in this Agreement for its

Agreement Balance.

(v)

Transferring Credits out of Agreement. Credits earned by Ford per this

Agreement for its Agreement Balance may not be used by or traded by

Ford to meet its or any other vehicle manufacturer’s obligation under the

Federal Program, or a CA and/or Section 177 State program based solely

on sales in CA and/or the Section 177 State(s).

35.

Modification and Termination. The Parties acknowledge that modifications to or

termination of this Agreement may be necessary or appropriate in response to various

events or circumstances.

(A)

If Ford or CARB, with any input from the Section 177 States, believes that

modifications to or termination of the Agreement may be warranted, it will

provide written notice to the other Party identifying the events or circumstances at

issue and explaining why modification to or termination of the Agreement may be

necessary or appropriate. Ford and CARB, with input from the Section 177

States, shall engage in good faith discussions to determine whether modification

or termination of this Agreement is necessary or appropriate.

(B)

Nothing in this paragraph obligates Ford or CARB, with any input from the

Section 177 States, to accept a proposed modification or termination, except as

follows:

(i)

If CARB, with any input from the Section 177 States, enters into an

agreement with another light-duty automobile manufacturer containing

GHG obligations materially different from and more favorable to Ford or

that light-duty automobile manufacturer than this Agreement, Ford has the

option to either (a) comply with this Agreement; (b) comply with the

provision(s) of the agreement with the other light-duty automotive

manufacturer that is materially different from and more favorable than this

Agreement or (c) terminate this Agreement.

(ii)

If any Section 177 State rescinds its Enforcement Discretion Letter

affiliated with this Agreement or seeks to enforce the CA Standards

against Ford, or if any other state becomes a Section 177 State without

promptly issuing an Enforcement Discretion Letter, then Ford has the

option to terminate this Agreement.

(iii)

If EPA imposes, or an action of a court results in imposition of, national

GHG emission standards equal to or more stringent than the commitments

specified in this Agreement, Ford and CARB agree that this Agreement

terminates upon the date the more stringent regulations begin to apply.

(C)

In all instances except those described in Paragraph 35(B) above, any

modification to this Agreement is only valid and enforceable if it is in writing and

signed by both Parties to this Agreement. If the Parties cannot agree, the Parties’

rights and obligations under this Agreement survive.

(D)

If this Agreement terminates in accordance with Paragraph 35, Ford shall

thereafter:

(i)

be subject to applicable law upon and after termination; and

(ii)

unless otherwise agreed by CARB in consultation with the Section 177

States, remain subject to remedies applicable under this Agreement for

GHG-related breaches occurring prior to termination of this Agreement.

36.

Reporting of Agreement Compliance to Section 177 States and Additional Commitments

Regarding Section 177 States. CARB may communicate the compliance status of Ford

with the terms of this Agreement to Section 177 States annually. Ford agrees, at CARB’s

request, to provide to Section 177 States certain submissions under this Agreement

containing Ford’s Confidential Business Information where the recipient Section 177

State(s) has the legal ability to protect such information against release to the public.

37.

Advancement of Electrification. The Parties recognize that the practical availability and

marketing of electrified vehicles to the public promotes the interests of both California

and Ford in furthering electrification technology development and deployment, including

via public acceptance of such technology, reduced costs, and charging infrastructure

expansion. CARB has an interest in making electrified vehicles more available and

affordable, reducing climate change impacts experienced by Californians, and supporting

the GHG reductions and technology development goals of the CA Standards and CARB’s

statutory requirements for further GHG reductions for later model years. In light of the

above, Ford and CARB agree that Ford’s performance as specified in Paragraphs 37(A)

and 37(B) are an important consideration for this Agreement, and are integral to CARB’s

decision to enter into it:

(A)

Ford will undertake electrification commitments described in Appendix B:

Electrification Commitments to this Agreement.

(B)

Ford shall report annually to CARB on the status of its electrification

commitments described in Appendix B: Electrification Commitments. The

Parties acknowledge that Ford has also made electrification commitments relating

to the Section 177 States as described in Appendix B: Electrification

Commitments. Ford’s annual report to CARB under Paragraph 33(C) will include

a description of the status of those commitments. At CARB’s request, Ford

agrees to transmit the report to the Section 177 States in accordance with

Paragraph 36.

(C)

In order to promote the environmental benefits of this Agreement, CARB

commits to continue its use of best efforts to complete expeditious review of

applications for certification of Zero Emission Technology vehicles.

38.

Enforcement in General. If the Executive Officer, with any appropriate input from the

Section 177 States, makes a determination that Ford has failed to comply with any term

of this Settlement Agreement, the Executive Officer will notify Ford, in writing, of the

reasons supporting the determination and provide Ford with information upon which the

determination was based. Except as provided below with regard to a GHG Credit

Shortfall Breach, breaches of this Settlement Agreement shall be enforced in accordance

with applicable contract law, including the availability of injunctive relief.

39.

Enforcement of Breach of GHG Fleet Commitments; Mitigation Plans. A breach of

GHG fleet commitments in Paragraphs 29-34 of this Settlement Agreement resulting in a

GHG credit shortfall required for a particular compliance period, after accounting for the

GHG credit averaging, trading and banking provisions of this Agreement (a “GHG Credit

Shortfall Breach”), is subject to enforcement by CARB exclusively in accordance with

the terms of this paragraph.

(A)

If the Executive Officer, with any appropriate input from the Section 177 States,

makes a determination and notifies Ford under this Agreement that Ford has

committed a GHG Credit Shortfall Breach, Ford may, within 60 Days of receipt

of the determination by the Executive Officer, propose a mitigation plan for

approval by the Executive Officer.

(B)

A mitigation plan shall fully mitigate the emissions consequences of the Credit

Shortfall Breach. It shall also prescribe Ford’s compliance for the GHG

emissions commitments in the Agreement going forward. If Ford’s return to

compliance is impracticable because there is inadequate time remaining in the

Agreement, the mitigation plan shall identify the means by which Ford will fully

mitigate the consequences of any anticipated Credit Shortfall Breach.

(C)

To address the emissions consequences of the Credit Shortfall Breach, Ford may

propose, subject to the approval of the Executive Officer in accordance with

Paragraph 39(F), a mitigation plan including any combination of commitments to

take remedial actions, to implement special projects, or to make payments into the

Trust Account to be used to promote electrification and reduce GHG emissions.

Payments into the Trust Account corresponding to the amount of the Credit

Shortfall Breach as determined under this subparagraph shall be deemed fully to

mitigate the emissions consequences of a Credit Shortfall Breach. In determining

the amount of tons of GHGs to be addressed in a mitigation plan, Ford shall

propose and CARB shall confirm and specify the credit shortfall.

(D)

Payment amounts under a mitigation plan shall generally be consistent with prices

for GHG credits in California’s cap-and-trade program, the Regional Greenhouse

Gas Initiative, or other similar GHG market programs, taking into account such

other equitable factors as may be appropriate under all of the circumstances, and

considering the social cost of carbon, using the Central 3 Percent Average Values

as expressed in Appendix A, Table A-1 of the Technical Support Document:

Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis

Under Executive Order 12866, Interagency Working Group on Social Cost of

Greenhouse Gases, United States Government (August 2016).

(E)

Mitigation plans may be enforced in court consistent with the venue provisions of

this Agreement.

(F)

The Executive Officer shall review a mitigation plan for consistency with the

terms of this Agreement and, on behalf of CARB, with any appropriate input from

the Section 177 States, either approve or reject within 30 Days, with an

explanation of any objections. This 30-Day period may be extended if Ford

agrees to an extension for further evaluation. If the Executive Officer rejects a

mitigation plan, in whole or in part, Ford will have 30 Days to amend the plan to

address any objections by the Executive Officer. If the Executive Officer

approves a mitigation plan, Ford shall implement the mitigation plan according to

its terms.

(G)

If Ford fails timely to submit a mitigation plan or an amended plan, or if the

Executive Officer rejects an amended plan, the Executive Officer may adopt a

mitigation plan for Ford. Any mitigation plans that include actions in addition to,

or in lieu of, payments into the Trust Account shall be limited to remedial actions

or implementation of special projects that Ford accepts as reasonable and whose

cost does not exceed, for the tons in question, the amount of payments into the

Trust Account determined in accordance with Paragraph 39(D) of this Agreement.

(H)

Ford shall have 60 Days after receipt of approval or adoption by the Executive

Officer to begin to implement a mitigation plan.

(I)

All payments required under a mitigation plan shall be deposited into a Trust

Account as directed by CARB. Trust Account funds shall be used to administer

the Trust Account. All funds deposited into this Trust Account shall be used to

promote vehicle electrification or otherwise to reduce vehicle GHG emissions, in

accordance with trust agreements to be developed in accordance with this

Agreement as necessary. CARB will notify Ford of the activities funded in each

Section 177 State by any such payments, including the number of electric vehicle

and fuel cell vehicle station installations, if applicable.

40.

Dispute Resolution. The Parties agree that the procedures contained in this paragraph are

the sole and exclusive procedures for resolving disputes under this Settlement

Agreement.

(A)

If Ford disagrees with the Executive Officer’s determination of breach under this

Settlement Agreement, or identifies other grounds for dispute under this

Settlement Agreement including but not limited to the Executive Officer’s

rejection of a mitigation plan or adoption of its own mitigation plan, Ford will

provide a written Notice of Dispute and Statement of Position to the Executive

Officer within 30 Days of the Executive Officer’s notification of breach or other

action that is the subject of dispute. Ford’s Notice of Dispute and Statement of

Position shall include any factual data, analysis, or opinion supporting Ford’s

position and any supporting documentation relied upon by Ford. CARB, with any

appropriate input from the Section 177 States, will serve its Statement of Position

within 45 Days of receipt of Ford’s Notice of Dispute and Statement of Position,

unless that period is modified by written agreement. CARB’s Statement of

Position shall include any factual data, analysis, or opinion supporting CARB’s

position and any supporting documentation relied upon by CARB.

(B)

The period of informal negotiations shall not exceed 60 Days from the date of

Ford’s receipt of CARB’s Statement of Position, unless that period is extended by

written agreement signed by CARB and Ford.

(C)

If CARB, with any input from the Section 177 States, and Ford are unable to

resolve a dispute before the expiration of the 60-Day period for informal

negotiations, either Party may file an action for breach in accordance with the

venue provision of this Settlement Agreement, after providing ten Days written

notice to the other Party. In any such action, the Parties shall be prohibited from

raising issues that were not previously raised during dispute resolution, except for

issues which could not practicably be raised previously during the dispute

resolution.

(D)

The time period for Ford to respond to CARB under any provision of this

Agreement, including the time periods to submit, amend or implement a

mitigation plan, shall not begin to run until the completion of dispute resolution

either by agreement between the Parties or by the final resolution of a court

proceeding.

41.

Force Majeure.

(A)

“Force Majeure” means, for purposes of this Agreement, an event arising from

causes beyond the control of Ford, which delays or prevents the performance of

any obligation under this Agreement, despite Ford’s best efforts to fulfill the

obligation, such as war, fires, floods, hurricanes, tornadoes, earthquakes, volcanic

eruptions, labor strikes (but not lock-outs), acts of terrorism, pandemics, and other

events resulting in unavoidable supply chain disruption. This does not include

negligent acts or Ford’s financial inability to perform unrelated to the event as

described in this paragraph.

(B)

If any event Ford considers to be a force majeure event occurs or

has occurred,

Ford shall provide written notice to CARB within 10 Days of when Ford first

knew that the event might cause a delay, impossibility or impracticability. Within

14 Days thereafter, Ford shall provide in writing to CARB an explanation and

description of the reasons for the delay, impossibility, or impracticability; the

anticipated duration of any delay; all actions taken or to be taken to prevent or

minimize any delay, impossibility, or impracticability; a schedule for

implementation of any measures to be taken to prevent or mitigate a delay or the

effects of any delay, impossibility, or impracticability; and Ford

’

s rationale for

attributing such delay, impossibility, or impracticability to a force majeure event

if it intends to assert such a claim. Ford shall include with any notice all available

documentation supporting the claim that the delay, impossibility, or

impracticability was attributable to a force majeure event.

(C)

If CARB, with any input from the Section 177 States, agrees that the delay,

anticipated delay, impossibility, or impracticability is attributable to a force

majeure event, CARB shall modify Ford

’

s obligations under this Settlement

Agreement as necessary and appropriate to account for the delay, impossibility, or

impracticability resulting from the force majeure event. CARB will notify Ford

in writing of the modifications approved by CARB.

(D)

If CARB, with any input from the Section 177 States, disagrees that a delay,

anticipated delay, impossibility, or impracticability has been or will be caused by

a force majeure event, CARB will notify Ford in writing of the decision.

(E)

Ford may elect to invoke dispute resolution in accordance with this Agreement

based upon CARB

’

s determinations and decisions pursuant to Paragraphs 41(C)

and 41(D) above.

42.

Records. Ford agrees that CARB, on behalf of itself or Section 177 States that have

issued Enforcement Discretion Letters, may request, and shall receive, records regarding

compliance with this Agreement by filing a request in writing; records will be provided

by Ford within 21 Days of a request. Ford may assert a claim of business confidentiality

as appropriate for any such records pursuant to California law and the corresponding law

of any Section 177 States that might seek to receive such records. Ford will retain all

relevant records for the term of this Agreement plus five years.

Additional Provisions

43.

Term and Expiration. Ford and CARB agree that, unless terminated or extended by

modification in accordance with Paragraph 35, the Settlement Agreement covers

MY2021 through MY2026. Except as otherwise specified in this paragraph, this

Settlement Agreement shall expire and be of no further force and effect following Ford

’

submission of data and technical information supporting its calculation of compliance for

MY2026 in accordance with Paragraph 33(C) which includes, subject to the resolution of

Ford’s Emissions Benefit Balance obligations in accordance with Paragraph 34(B)(vi)

and three-year deficit carry-forward in accordance with Paragraph 34(C)(iii), verification

of Ford’s Emissions Benefit Balance to determine whether MY2026 credits and/or

deficits were fully resolved to achieve compliance through MY2026. If the Executive

Officer has made a determination and notified Ford of a GHG Credit Shortfall Breach

within 60 Days after Ford

’

s submission of data and technical information with respect to

Model Year 2026, the enforcement of breach of GHG fleet commitments/mitigation plan

requirements and the dispute resolution provisions shall survive for the sole purpose of

resolving a determination of a GHG Credit Shortfall Breach, in accordance with

Paragraph 39.

44.

Entirety. This Agreement constitutes the entire agreement and understanding among the

Parties concerning the matter described herein, and supersedes and replaces any and all

prior negotiations and agreements of any kind, whether written or oral, among the Parties

concerning the matter described herein. This Agreement consists of 46 pages plus

signature pages and appendices and 57 numbered paragraphs.

45.

Binding Effect. This Agreement binds Ford and any principals, officers, receivers,

trustees, successors and assignees, subsidiary and parent corporations and upon CARB,

and any successor agencies that may have responsibility for and jurisdiction over the

subject matter of this Agreement.

46.

Effective Date. This Settlement Agreement is binding and effective as of the date that it

is fully executed by Ford and CARB.

47.

Agreement Not Severable. In the event that any provision of this Settlement Agreement

is held by a court to be illegal, invalid, or unenforceable in any jurisdiction, the Parties

shall enter into good faith negotiation regarding modification in accordance with

Paragraph 35 above with the intent to achieve the objectives and benefits of this

Settlement Agreement to the greatest extent possible. Following such negotiations, either

Ford or CARB, with any appropriate input from the Section 177 States, may provide

written notice to the other Party terminating this Settlement Agreement if the Agreement

is not capable of modification in the view of either Party.

48.

Choice of Law. This Agreement shall be interpreted and enforced in accordance with the

laws of the State of California, without regard to California’s choice-of-law rules.

49.

Rule of Construction. Any rule of construction to the effect that ambiguities are to be

resolved against the drafting Party shall not be applied in interpreting this Settlement

Agreement, including in any dispute resolution process.

50.

Non-Waiver. The failure to enforce any provision of this Agreement shall not be

construed as a waiver of any such provision, nor shall it prevent such Party thereafter

from enforcing such provision or any other provision of this Agreement. The rights and

remedies granted all Parties herein are cumulative and the election of one right or remedy

by a Party shall not constitute a waiver of such Party’s right to assert all other legal

remedies available under this Agreement or otherwise provided by law.

51.

Intent to be Bound. The Parties represent that they have participated fully in the review

and drafting of this Agreement; understand and accept all terms; that they enter into this

Agreement freely and voluntarily; have had an opportunity to consult with legal counsel;

that they are fully informed of the terms and effect of this Agreement; that they enter into

this Agreement after independent investigation and through no fraud, duress, or undue

influence; and that they knowingly and voluntarily intend to be legally bound by this

Agreement.

52.

Venue. The Superior Court of California, located in the County of Sacramento, shall

hear any dispute between the Parties arising from this Agreement.

53.

Counterparts. This Agreement may be executed in counterparts. Facsimile or

photocopied signatures (including PDF copies) shall be considered as valid signatures as

of the date hereof, although the original signature pages shall thereafter be appended to

this Agreement.

54.

Release and Covenant Not to Sue. In consideration of Ford’s voluntary commitments in

this Agreement, CARB releases Ford and its principals, officers, receivers, trustees,

successors and assignees, subsidiaries, affiliates and parent corporations from any claims,

and covenant not to sue or otherwise pursue such entities or individuals, for violations of

the CA Standards for MY2021-MY2026. However, CARB retains authority to enforce

this Settlement Agreement on the terms provided herein.

55.

Authority. The undersigned represents that he or she has full authority to enter into this

Agreement.

56.

Assignment. This Settlement Agreement and the rights, duties, and obligations under it

may not be assigned or delegated by CARB or Ford without the prior written consent of

the other Party. Any assignment or delegation made without prior written consent shall

be void.

Notices

57.

Notices. All notices, demands, requests, consents, approvals, or other communications

(collectively “Notices”) required or permitted to be given pursuant to this Settlement

Agreement shall be in writing and shall be transmitted via United States mail and

electronic mail to the Parties set out below. Notice shall be deemed given on the date of

receipt.

To CARB:

Executive Officer

California Air Resources Board

1001 I St

Sacramento, CA, 95814

Richard.Corey@arb.ca.gov

To Ford:

Robert T. Holycross

Vice President, SE&SE

Ford Motor Company WHQ

One American Road

Dearborn, MI 48126

rholycro@ford.com

Cynthia Williams

Global Director, SH&C

Ford Motor Company WHQ

One American Road

Dearborn, MI 48126

cwilli96@ford.com

Date:

--------------------

--------

Richard W. Corey, Executive Officer, CARB

lLl

/6,-----

Date:

-----

----

For Ford Motor Company

Robert T. Holycross, Vice President,

Sustainability, Environment and Safety Engineering

8/17/2020

APPENDIX A: CURVE COEFFICIENTS

A-1

Appendix A : Curve Coefficients

Passenger Car and Light Truck Curve Coefficients representing 1 percent less year over year

stringency to be used in calculation of 1 percent cap for Zero Emission Technology vehicles

multiplier.

Passenger Car Curve Coefficients (1 Percent Less)

Model year

Minimum

Footprint

< 41.0 ft

(a)

(b)

Maximum

Footprint

> 56.0 ft

2021

157.0

3.84

-0.4

215.0

2022

153.0

3.74

-0.4

209.0

2023

149.0

3.64

-0.4

203.0

2024

145.0

3.54

-0.4

198.0

2025

141.0

3.44

-0.4

192.0

2026

137.0

3.35

-0.3

187.0

A-2

Light Truck Curve Coefficients (1 Percent Less)

Model Year

Minimum

Footprint

< 41.0 ft

(a)

(b)

Maximum Footprint

Greater

than or

equal to:

(ft

)

Value

2021

195.0

4.28

19.8

73.5

335.0

2022

190.0

4.16

19.3

74.0

327.0

2023

185.0

4.05

18.7

74.0

318.0

2024

180.0

3.94

18.2

74.0

310.0

2025

175.0

3.84

17.7

74.0

302.0

2026

170.0

3.73

17.3

74.0

293.0

Appendix B: Electrification Commitments

-- CONTAINS CONFIDENTIAL BUSINESS INFORMATION

Ford Framework Agreement

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