Corporate Average Fuel Economy (CAFE) Standards

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Corporate Average Fuel Economy (CAFE) Standards

• Jennifer Alexander
• Spring 2008

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Outline

• Energy Policy Conservation Act of 1975
• CAFE Program and how it is administered
• How standards are calculated
• Light Truck program
• New Light truck standards
• Energy Independence and Security Act of 2007

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Energy Policy Conservation Act 49 USC 329

• Passed in 1975, in response to Arab oil embargo
• In 1974, average passenger car fuel economy was
  12.9 mpg
• Title V Improving Automotive Efficiency
• Established CAFE standards for passenger cars
  for model year (MY) 1978-MY1980 and 1985 and
  beyond, and for light trucks beginning in MY1979.
• Standards in 1978 were to be 18 mpg, 19 mpg in
  1979, 20 mpg in 1980 and 27.5 in 1985, which has
  remained constant until today
• Secretary of Transportation (DOT) set standards
  for interim years of 81-84
• Goal was to double new car fuel efficiency by
  1985

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Who Administers the Program?

• EPCA granted National Highway Transportation
  Safety Administration (NHTSA), part of the
  Department of Transportation, the authority to
  administer the CAFE program.
• EPCA (Congress) set standards for passenger cars.
• NHTSA has the authority to set standards for
  other classes of vehicles, including light
  trucks.
• After 1985, Secretary of Transportation has
  discretion to adjust passenger car standard
  within range of 26.0 and 27.5mpg. An increase
  above or below requires Secretary to issue
  amendment which is in force until Congress
  disapproves.

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• Secretary has much broader discretion with
  regards to light trucks. Congress set no
  specific standards, and left it up to DOT
• NHTSA also does things such as establishes and
  amends standards, promulgates regulations
  regarding CAFE procedures, enforces standards,
  considers petitions for exemptions, collects
  manufacturers reports, and more.
• EPA has responsibility for calculating fuel
  economy for each manufacturer

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Maximum Feasible Fuel Economy Standards

• EPCA dictates that DOTs determination to change
  standards must be made in consideration of 4
  factors
• Technological Feasibility
• Economic Practicability
• Effect of other standards on fuel economy and
• Need of the nation to conserve energy
• 49 USC 32902(a)

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• Cafe Standard is
• a performance standard specifying a minimum
  level of average fuel economy applicable to a
  manufacturer in a model year
• 49 USC 32901(a)(6)
• Automobile is defined
• A four wheeled vehicle that is propelled by
  fuel, or by alternative fuel, manufactured
  primarily for use on public streets, roads, and
  highwaysand rated at
• Not more than 6,000 lbs gross vehicle weight, or
• More than 6,000 pounds GVW, if the secretary
  decides by regulation that-
• An average fuel economy standard under this
  chapter is feasible, and
• the vehicle is substantially used for the
  same purposes as a vehicle rated at not more than
  6,000 lbs GVR
• 49 USC 32901(a)(3)

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• Passenger Automobile
• Automobile that the Secretary decides by
  regulation is manufactured primarily for
  transporting not more than 10 individuals, but
  does not include an automobile capable of
  off-highway operation that the Secretary decides
  by regulation-
• Has a significant feature (except 4-wheel drive)
  designed for off-highway operation and
• Is a 4-wheel drive automobile or is rated at more
  than 6,000 pounds GVWR
• 49 USC 32901(a)(16)
• Light truck (set out in regulations, not EPCA)
• Automobile other than a passenger automobile
  which is either designed for off-highway
  operation, or
• Is rated at more than 6,000 lbs GVW and
• That has at least four of the following
  characteristics affecting off road capability
  relating to approach angle, breakover angle,
  departure angle, running clearance, and front and
  rear axle clearance

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CAFE Calculation

• Two-Fleet Rule Domestic and foreign produced
  cars measured separately, each must meet standard
• No such two-fleet rule for light trucks
• Fleet average is a sales weighted mean
• Compliance is measured by using harmonic mean
  calculation

Fleets Fuel Economy
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How is fuel economy determined?

• 3 sets of calculations NHTSAs figures, EPAs
  unadjusted dynamometer values, and EPAs adjusted
  on-road values.
• EPA does laboratory tests that measure emissions,
  and based on amount of carbon emitted during the
  test they determine the fuel economy.
• Adjusted values are the ones currently listed on
  new car labels, they are adjusted for a number of
  factors.
• EPA used to perform tests in 75 weather, with
  acceleration and speeds lower than average driver
  uses, and without accessories turned on (AC,
  radio).

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Ann Arbor, MI
Chevy Silverado being tested in dynamometer
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EPAs new fuel economy stickers

• New test methods (appearing on MY2008 stickers)
  will bring estimates closer to actual fuel
  economy by factoring in 1) high speeds and
  quicker accelerations, 2) air conditioning use,
  3) and driving in cold temperatures, as well as
  road conditions, tire pressure, load, and
  different fuels.
• Beginning in 2011, labels will be required on
  certain vehicles up to 10,000 lbs GVWR
• Labels are redesigned to make it easier for
  consumers to compare vehicles
• In 2011, more vehicle specific testing to be
  done, for vehicles most sensitive to the 3 new
  adjustments

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Penalties

• If average fuel economy of a manufacturers
  fleet falls below the standard, manufacturer must
  pay penalty of 5.50 per 0.1 mpg below the
  standard, times the total number of vehicles in
  fleet for that model year in violation
• Since 1983, over 675M in penalties paid
• Most European manufacturers regularly pay, Asian
  and the big domestic companies have never paid
  fines.
• In 2006, Maserati, BMW, Porsche, Volkswagen, and
  DaimlerChrysler (30M) all paid fines in excess
  of 1M (and Ferrari paid 850K)

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Offsets

• Manufacturers can earn credits for any year they
  exceed the standard for that fleet
• Credits can be banked for up to three years
• Offsets can be used to cover penalties up to
  three years
• The amount of credit a manufacturer earns is
  determined by multiplying the tenths of a mile
  per gallon that the manufacturer exceeded the
  CAFE standard in that model year by the amount of
  vehicles they manufactured in that model year
• Carry Back Plan can be used to avoid
  penalties when manufacturer is in violation and
  has no credits. Must submit plan to NHTSA
  detailing what manufacturer plans to do in the
  next 3 years to make up the current deficit

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Alternative Fuel Vehicles

• 49 USC 32905- Manufacturing incentives for
  alternative fuel automobiles
• Dual fuel calculation used as incentive to
  develop alternative fuel vehicles.
• Dual fuel vehicles can take advantage of this
  credit, even though less than 1 of the fuel used
  in E85 capable vehicles is E85.

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Alternative Fuel Vehicles

• - For vehicles that use only an alternative
  fuel,
• fuel economy is calculated by dividing its fuel
• economy in equivalent miles per gallon of
• gasoline or diesel fuel by 0.15. So a Car that
  gets
• 15 mpg alternative fuel is equal to 100 mpg gas
• Dual Fuel Vehicles average of fuel
• economy on gasoline/diesel with fuel economy on
  alternative fuel, divided by 0.15. 1/0.5/(mpg
  gas) 0.5/(mpg alt fuel) 1/0.5/25 0.5/100)
  fuel economy for duel fuel vehicle
• Natural gas vehicles - weighted average on using
  natural gas and gasoline/diesel. Alternative
  Motor Fuels Act says that 1003 ft of natural gas
  is equal to 0.823 gallons of gasoline. Same 0.15
  equivalency to gasoline for natural gas. For a
  car that gets 25 mpg for natural gas
• CAFE FE (25/100) (100/.823)(1/0.15) 203 mpg

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Light Trucks

• Originally light trucks were up to 6,000 lbs
  gross vehicle weight rating (GVWR).
• As of 1980 light truck standards are for trucks
  up to 8,500 lbs GVWR
• Before 1992, there was a two-fleet rule for
  LDTs 4-wheel drive and 2-wheel drive LDTs
  measured seperately.
• In MY1979, first year of LDT standards, standard
  was 17.2 for 2-wheel and 15.8 for 4-wheel drive.
• Standard progressively increased to 20.7 in 1996,
  when DOT Appropriations included a prohibition
  against making any adjustments past 20.7mpg

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Change in LDT standard

• In conference on 2001 DOT appropriations bill,
  Senate insisted the freeze on LDT CAFE standard
  be dropped
• This opened the way for NHTSA to begin rulemaking
  to increase LDT standard again
• In December 2002, believing that some
  manufacturers may be able to achieve higher CAFE
  performance than they currently project1, NHTSA
  proposed a rule increasing LDT CAFE to 21.0 mpg
  in MY2005, 21.6 mpg in MY2006, and 22.2 mpg in
  MY2007.
• On April 3, 2003, NHTSA adopted this proposed
  rule.

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New Light Truck Rules (MY2008-2011)

• In April 2006, NHTSA issued a Final Rule
  increasing stringency of LDT program standards,
  and restructuring the way the standards are
  calculated Reformed Standards
• First phase of new rules was to be MY2008-2011.
• Before 2011, manufacturers can choose to use
  reformed or unreformed standards to calculate
  compliance. Unreformed standards use current
  system of single average mandated for entire
  fleet.
• For the first time, medium-duty passenger
  vehicles, vehicles between 8,500 GVW and 10,000
  GVW will be subject to CAFE standards.

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Unreformed CAFE standards up to 2011
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Reformed Standards for LDTs

• Fuel Economy standard no longer one uniform
  number, but based on footprint of car- product
  of vehicles wheelbase (distance between the
  centers of the axels) and its track width
  (distance between center line of the tired)
• Using continuous mathematical formula, in which a
  target fuel economy would be set for each
  increment in footprint

Incremental fuel economy standard in final rule
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• Smaller footprint trucks had higher targets,
  larger footprint trucks had lower fuel economy
  targets
• Manufacturers mandated fuel economy is
  calculated based on sales weighted average of
  targets for each vehicle line.
• Manufacturers who make more small trucks would
  have to meet a higher standard, and those who
  make primarily large trucks would have to meet a
  lower overall standard
• No particular overall standard a manufacturer had
  to meet. No specific vehicle is required to meet
  specific fuel economy, only required that average
  meets standard that is based on the overall fleet
  mix

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Proposed Reformed CAFE Standards (miles per
gallon) (from Notice of Proposed Rulemaking, but
not actually adopted.)
Category 1 2 3 4 5 6
Range of vehicle footprint (in square feet) lt43.0 gt43.0747.0 gt47.052.0 gt52.056.5 gt56.565.0 gt65.0
MY 2008 targets 26.8 25.6 22.3 22.2 20.7 20.4
MY 2009 targets 27.4 25.6 23.5 22.7 21.0 21.0
MY 2010 targets 27.8 26.4 24.0 22.9 21.6 20.8
MY 2011 targets 28.4 27.0 24.5 23.3 21.7 21.2
Source National Highway Traffic Safety Administration, Notice of Proposed Rulemaking, "Average Fuel Economy Standards for Light Trucks Model Years 2008-2011," 49 CFR Parts 523, 533 and 537, Docket no. 2005-RIN2127-AJ61. Source National Highway Traffic Safety Administration, Notice of Proposed Rulemaking, "Average Fuel Economy Standards for Light Trucks Model Years 2008-2011," 49 CFR Parts 523, 533 and 537, Docket no. 2005-RIN2127-AJ61. Source National Highway Traffic Safety Administration, Notice of Proposed Rulemaking, "Average Fuel Economy Standards for Light Trucks Model Years 2008-2011," 49 CFR Parts 523, 533 and 537, Docket no. 2005-RIN2127-AJ61. Source National Highway Traffic Safety Administration, Notice of Proposed Rulemaking, "Average Fuel Economy Standards for Light Trucks Model Years 2008-2011," 49 CFR Parts 523, 533 and 537, Docket no. 2005-RIN2127-AJ61. Source National Highway Traffic Safety Administration, Notice of Proposed Rulemaking, "Average Fuel Economy Standards for Light Trucks Model Years 2008-2011," 49 CFR Parts 523, 533 and 537, Docket no. 2005-RIN2127-AJ61. Source National Highway Traffic Safety Administration, Notice of Proposed Rulemaking, "Average Fuel Economy Standards for Light Trucks Model Years 2008-2011," 49 CFR Parts 523, 533 and 537, Docket no. 2005-RIN2127-AJ61. Source National Highway Traffic Safety Administration, Notice of Proposed Rulemaking, "Average Fuel Economy Standards for Light Trucks Model Years 2008-2011," 49 CFR Parts 523, 533 and 537, Docket no. 2005-RIN2127-AJ61.
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Challenge to NHTSA Final Rule

• 11 states, DC, NYC, and four public interest
  organizations filed petition for review of final
  rule for LDT MY2008-MY2011, in Center for
  Biological Diversity v. NHTSA, 508 F.3d 508 (9th
  Cir. 2007).
• Challenged final rule under EPCA and NEPA.
• EPCA Arguments
• Arbitrary and capricious and contrary to EPCA
• Agency did not set CAFE standards at maximum
  feasible levels.
• Cost-benefit analysis done by NHTSA gave no
  benefit to reducing CO2 emissions,
• Using vehicle attributes to set fuel economy
  standard means there is no backstop, or floor
  fuel economy to meet for a given year. This will
  encourage manufacturers to make bigger vehicles.
• Did not address SUV loophole- allows these
  vehicles to meet lower CAFE standard even though
  many are built on car platforms and serve same
  function as passenger cars.

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• Argued under NEPA that the final rule failed to
  take a hard look at the GHG implications of its
  rulemaking and they failed to look at rules
  cumulative impact.
• NHTSA must prepare EIS, not just EA

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9th Circuit overturns NHTSA rules

• Court found rules arbitrary and capricious and
  contrary to EPCA
• Court agreed with possibility of having no
  backstop on truck size would continue to permit
  upsizing, and failed to prevent trucks from
  emitting more CO2 than in previous years
• The decision not to address the SUV loophole
  was arbitrary and capricious, it was contrary to
  the language of the law.

• NHTSA incorrectly set value of 0 to global
  warming damage caused by truck usage

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• NHTSA rules also failed to promulgate fuel
  economy standards for vehicles weighing
  8,500-10,000 lb GVW, nor did they show that there
  was a validly reasoned basis for not doing so.
  
• Environmental Assessment done was inadequate
• These rules may in fact have a significant impact
  on the environment
• 9th Circuit returned the rules to NHTSA, saying
  that they must make new standards as
  expeditiously as possible and fully evaluate
  the impacts of these standards on the environment

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Energy Independence and Security Act of 2007

• P.L. 110-1040
• Omnibus energy policy law aimed as increasing
  energy efficiency and renewable energy
  availability.
• Titles I-XVI

.

• President Bush signed EISA into law December 19,
  2007

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Highlights of EISA

• Title I- Energy Security Through Improved Vehicle
  Fuel Economy
• Title II Biofuels
• Title III - Standards for appliances and lighting
• Title VI Research and Development
• Title VII Carbon Capture and Sequestration
• Title X Green Jobs
• Title XI Energy Transportation and
  Infrastructure
• Title XII Small Business Energy Programs

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Title I Fuel Economy

• Statute sets a 35 mpg standard for both passenger
  cars and light duty trucks by 2020
• Although cars and trucks must meet the same
  standard, they are still measured separately.
• Can use attribute-based standards, which Bush
  administration says will ensure increased fuel
  economy doesnt come at the expense of safety

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April 22 Update(Earth Daycoincidence?)

• Administration announced interim standards for
  2015 of 31.5 mpg (combined)
• Will force auto makers to speed up their
  development of more fuel efficient vehicles.
• 4.5 percent increase per year from 2011-2015
• Would be a 25 percent increase by 2015 (EISA
  requires 40 by 2020)
• DOT took carbon dioxide into account in its costs
  and benefits analysis
• Manufacturer standard would be based on type of
  vehicles they sell, based on vehicle attributes
• Manufacturers can sell credits

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Conclusions and Implications for Future

• Do regulations affect consumer choice? Or do gas
  prices?
• Will better fuel economy mean more driving,
  possibly negating advances in fuel economy?
• How much will auto industry to do prevent further
  increases, since they make more money off larger
  cars?
• Safety Impacts? Are smaller cars really
  inherently less safe? Or do lower fuel economy
  standards for trucks just allow automakers to
  make heavier cars, making it less safe for
  drivers of small cars? Will increased standards
  help move towards evening out auto weights across
  fleet lines?

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Implications and thoughts (contd.)

• Should the timetable set have been shorter? Are
  auto manufacturers given too much time to comply?
• Will a uniform standard for passenger cars and
  light trucks mean the end of SUVs and minivans?
  These cars were created in response to CAFE
  standards, because standards for light duty truck
  were lower and these autos could fit into this
  new category.
• Is it possible that rather than causing all the
  doomsday situations opponents of tighter
  standards predict, that these standards will
  finally force automakers to increase the
  technology of engines, something many say should
  have been done years ago, and actually
  effectively effectuate Congresss goals?

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