The Obama Administration has publicized their 2025 fuel economy standards will increase fleet-wide average efficiency to 54.5 mpg and new vehicle purchasers’ will save $8,200.  In addition, consumers will save $1.7 trillion and 12 billion barrels of oil, and eliminate 6 billion metric tons of carbon dioxide over the new program life.  The new ‘Corporate Average Fuel Efficiency’ (CAFE) standards will also substantially reduce U.S. oil imports.  Compared to past Federal CAFE regulations these latest standards could truly be historic, if the promised benefits are real.

 

Brief U.S. CAFE History – Following the 1973 Arab OPEC oil embargo Congress passed the 1975 Energy Policy and Conservation Act (EPCA).  The EPCA created the first CAFE standards that required manufacturers build increasingly more efficient ‘light duty vehicles’ (LDV, gross vehicle weight < 8501 lbs.).  Unlike the EU governments’ strategies of discouraging LDV ownership and usage by implementing huge fuel and vehicle taxes, the U.S. CAFE strategy effectively ‘rations’ consumers motor fuel demand by mandating increased fuel efficiency of new LDV’s (sales).  The initial CAFE standards were designed to double LDV fuel efficiency by the mid 1980’s.  Separate LDV auto and light truck fleet CAFE standards were initiated in 1978/79.  Refer Figure 1.

Figure 1 – CAFE and Actual LDV Fleet Average Fuel Efficiencies

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DOT FHA Highway Statistics for Registered Passenger Autos and Light Trucks. MPG - miles per gallon, Std.-Standard, Eff.-Efficiency.

Actual fleet LDV fuel efficiencies lagged well behind established CAFE standards.  Although replacing the bulk of existing inefficient LDV stocks takes time, the actual improvement in fleet average mpg did not achieve CAFE standards due to technical and market issues.  First, measuring CAFE is based on laboratory standard tests that accurately compare the fuel efficiency of different vehicles, but do not duplicate actual driving fuel consumption performance.  To correct for this actual vs. lab. fuel efficiency variance the EPA developed new ‘adjusted’ CAFE standards.  The adjusted fuel efficiency tests show that actual LDV mpg performance averages about 20% less than unadjusted CAFE lab. data.  The second very significant factor to actual vs. lab. CAFE variances are due to CAFE compliance ‘loopholes’ approved over the years. 

Since the 1980’s average U.S. LDV weights, horsepower and driving performance (acceleration, top speed, etc.) have increased substantially.  These changes occurred while fully complying with increasing CAFE standards.  Some of these performance improvements were made at the expense of possible further increased fuel efficiency.  These changes in LDV physical characteristics were allowed due to many CAFE loopholes that, pardon the pun, you could drive a sports utility vehicle (SUV) through.  CAFE loopholes included classifying SUV’s as light trucks with substantially lower fuel efficiency requirements.  In addition, manufacturer’s were given very generous CAFE compliance credits for producing large numbers of ‘alternative’ and ‘flexible’ fueled vehicles (AFV and FFV).  Very few of the light duty AFV’s and FFV’s were ever operated on alternative natural gas, LPG or E-85 fuels. 

Due to a variety of economy, market and political reasons U.S. CAFE standards stagnated from the mid 1980’s into the late 2000’s.  In 2007 Congress passed the Energy Independence and Security Act (EISA), which mandated increasing CAFE standards up to a minimum of 35 mpg by (model-year) MY2020.  To begin EISA compliance the National Highway Traffic Safety Administration (NHTSA) and Environmental Protection Agency (EPA) developed MY2012-16 fuel efficiency standards in 2009 that increased LDV (unadjusted/lab.) CAFE from 27.9 mpg up to 34.1 mpg for combined autos and light trucks.  The NHTSA/EPA recently increased the combined LDV fleet CAFE standard up to 49.6 mpg by MY2025.  This new CAFE standard completes EISA requirements and increases CAFE standards to new historic levels. 

The latest MY2017-25 CAFE standards create a new, more complex system of traditional CAFE requirements and new carbon dioxide (CO2) per mile reduction targets.  Fortunately the new CAFE standards should help phase-out some historic loopholes including eliminating the auto-light truck definitions and eventually require FFV’s actually use E-85 to qualify for CAFE credits.  The new CAFE standards, however, create new loopholes including ‘vehicle footprint’ (axle width-times-length between axles), extremely generous electric and plug-in hybrid electric vehicles (EV/PHEV) and conventional internal combustion engine (ICE) hybrid-electric vehilce (HEV) credits, and even credits for air conditioner upgrades.  In the future we can expect wider, longer LDV’s, increased numbers of HEV SUV’s and light trucks, and upgraded or eliminated air conditioners.  The issue with SUV/light truck HEV technology is that actual fuel efficiency upgrades are relatively small and expensive for full-size, heavier LDV’s. 

Will the New CAFE Standard Save Consumers Money? – To describe the benefits of the recent Obama Administration’s Fuel Economy Standards a new ‘window sticker’ was developed that shows fleet-wide average (fuel efficiency) will be 54.5 mpg and purchasers of  new MY2025 vehicles will save $8,200 in fuel over the new LDV lifetime (compared to similar MY2010 LDV, http://www.whitehouse.gov/sites/default/files/fuel_economy_report.pdf).  The ‘window sticker’ also illustrates we can purchase a new van, sport-cab truck and EV or PHEV and realize the savings.  Review of NHTSA/EPA data indicates the average (unadjusted/lab.) CAFE standard will increase from 25.7 mpg (MY2010) up to 49.6 mpg (MY2025).  Refer to Figure 2. 

Figure 2 – CAFE and LDV Fleet Average Fuel Efficiencies

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NHTSA/EPA Final Rules and Regulatory Impact Analysis for CAFE MY2011-2016 and MY2017-2025 ‘unadjusted’ CAFE Data.  The ‘on-road’ adjusted CAFE based on EIA AEO2012 degradation factors.

The new MY2011-25 NHTSA/EPA regulations effectively combine the past separate auto and light truck fuel efficiency requirements into a single combined new LDV fleet CAFE standard.  The ‘window sticker’ fleet-wide average 54.5 mpg is based largely on EPA CO2/mile reduction targets.  After taking into account the various carbon credits, LDV footprint, fleet mix, etc. the NHTSA determined the LDV fleet average ‘unadjusted/lab.’ CAFE should be 49.6 mpg by MY2025.  Based on the recent EPA ‘city/highway’ CAFE adjustments and related EIA data the MY2025 fleet-wide actual ‘on-road’ LDV average fuel efficiency should be 40.4 mpg. 

The ‘window sticker’ LDV fuel efficiency of 54.5 mpg by MY2025 is definitely feasible, but is generally limited to conventional ICE subcompact LDV and the much more expensive HEV and PHEV.  The NHTSA estimates that the added costs to double LDV fuel efficiency MY2011-25 is about $1-$2 thousand (K) per vehicle.  This added cost appears reasonable for conventional ICE subcompacts or smaller LDV’s only.  The HEV and PHEV technologies are considerably more expensive and will add up to $10K per LDV costs, which effectively offsets all the estimated $8,200 fuel savings over a MY2025 LDV lifetime.  Only the conventional ICE subcompacts or mini-compact cars can feasibly realize up to the published $8,200 savings for MY2025 LDV’s.  To avoid confusion, the ‘window sticker’ should be edited to clarify that the MY2025 fleet-wide average CAFE will be 49.6 mpg and that the expected on-road (city & highway) fuel efficiency will average about 40.4 mpg.  

The ‘window sticker’ should also be edited to emphasize the estimated $8,200 savings are fuel savings only.  Only ICE subcompact or smaller LDV’s can actually save MY2025 purchasers up to a net $8,200 over the vehicle lifetime (10-15 years) compared to similar MY2010 LDV.  Illustrating or referencing purchasing MY2025 EV/PHEV’s is also problematic since these LDV’s not only cost up to $10K more than a ICE subcompact LDV, but over a 10-15 year vehicle life span the large battery packs will need replacing at an additional cost of $5K-$10K each. 

What Will The Cumulative Savings Be Over the New CAFE Program Life? – The ‘window sticker’ states that consumers will have saved $1.7 trillion and 12 billion barrels of oil over the life of the (new CAFE) program.  Rather than relying solely on the NHTSA/EPA analysis another very credible Federal Agency has also analyzed the effect of the new CAFE standards on the U.S. Transportation Sector.  The Energy Information Administration (EIA) routinely analyzes and forecasts the impacts of new regulations, including CAFE standards.  The analysis results and supporting data are routinely published in the EIA Annual Energy Outlook (AEO) reports.  The most recent AEO2012 was completed in June. 

The U.S. LDV fleet petroleum consumption is a function of the total fleet (stock) size, the annual number of new LDV (sales), and the total ‘vehicle miles traveled’ (VMT) by used and new LDV’s.  To verify the ‘window sticker’ claimed cumulative fuel cost and oil savings I developed an economic model based on AEO2012 data.  The results agreed quite well with the ‘window sticker’ LDV fuel and petroleum oil savings “over the life of the (new CAFE) program”.  However, the new CAFE program ‘life’ was not clearly defined.  Based on AEO2012 data I was able to confirm that purchaser’s of new LDV’s would save a cumulative total of $1.7 trillion in fuel costs over a ‘20 year period’, MY2011-30 (2011 cost basis).  In addition, the total cumulative reduction in U.S. petroleum (gasoline equivalent) oil would be 12.2 billion barrels over the same 20 year period.  A 20 year period represents 1.5-2.0 times the average life span of typical new LDV.  Obviously, the longer the time period used to determine the new CAFE benefits, the larger the benefits magnitude.  Note: the 20 year new CAFE cumulative savings estimate only apply to the new LDV fleet sales MY2011-2025 and specifically excludes existing (used) LDV stock impacts on total combined fleet (used + new) fuel consumption and costs. 

The ‘window sticker’ states the 12 billion barrels of saved oil (reduced consumption) will also eliminate CO2 emissions by 6 billion metric tons (MT) over the (20-year) life of the program.  Based on EIA data for the MY2011-30 the ‘tank-to-wheel’ (TTW) or reduction of actual gasoline consumption-associated CO2 emissions should be 4.4 billion metric tons (MT).  The 1.6 billion MT CO2 difference compared to the ‘window sticker’ is apparently due to several factors.  These include the use of various carbon credits allowed under the new CAFE standards that do not actually reduce CO2 and application of the gasoline lifecycle ‘well-to-wheel’ (WTW) vs. TTW CO2 emissions.  The established method used by many Federal Agencies for determining petroleum motor fuels lifecycle WTW CO2 emissions has been found to contain erroneous data that significantly over estimates actual lifecycle CO2 generated.  Applying the corrected gasoline WTW lifecycle CO2 emissions to the cumulative 20 year oil savings increases the level of total CO2 reductions up to 4.9 billion MT (excluding all administrative carbon credits).  To make the ‘window sticker’ more accurate the ‘eliminated CO2’ should be changed to 5 billion MT over the 20-year life of the program.  The total oil savings and reduced CO2 assume no amendment or modification of the CAFE regulations for the next 20 years. 

Will the New CAFE Program Actually Reduce Future Oil Imports? – The Highlights of the Obama Administration Fuel Economy Standards state that the new (CAFE) standards for MY2011-25 will reduce oil consumption by an estimated 2.2 million barrels per day (MBD) by (calendar year) CY2025 and oil savings will grow ultimately to over 4 MBD (in the future).  The new CAFE standards are supposed to contribute to over half the savings needed to meet President Obama’s goal of reducing imports (2011 gross imports = 11.4 MBD)  by one-third by CY2025.  These outcomes could be feasible if the new LDV fleet is evaluated in isolation to the rest of the Transportation Sector LDV total fleet.  However, if this analysis is completed more accurately and comprehensively the overall U.S. oil imports may not improve to the level documented in the Administration’s MY2011-2025 Highlights. 

The major gap with the NHTSA evaluation used to estimate MY2011-25 fuel consumption and U.S. oil imports is that this analysis does not take into account the normal-projected growth in U.S. population, the economy, LDV total fleet size and changes to average VMT.  To more accurately project future oil imports I expanded the LDV economic model to more fully account for the major variables that can affect Transportation Sector LDV total fuel consumption and related performance factors.  Refer to Table 1.

Table 1 – U.S. LDV Fleet Performance MY2010-2035

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AEO2012 data tables.  Gaso – gasoline equivalent oil consumption

The U.S. total population is projected to increase from 310 to 390 million, 2010-2035.  This will increase the number of licensed drivers and total number of LDV’s.  The EIA also projects an increase in average VMT per LDV.  Although the new CAFE standard effectively doubles new LDV mpg and the number of annual new LDV sales is projected to increase by almost 2/3’s, the increase in total LDV’s and VMT results in no decrease of LDV total petroleum (gasoline equivalent) oil consumption by CY2035.  The almost constant total fuel consumption between CY2010 and CY2035 means that the new CAFE standards will have relatively small impact on total U.S. oil imports over the effective life of the program.   This also results in no significant change in associated CO2 emissions during this same period. 

Can Future CAFE Standards Reduce the U.S. Carbon Footprint and Oil Imports? – The recent NHTSA/EPA increased CAFE standards should make significant progress towards reducing future U.S. petroleum consumption, need for oil imports and reduced CO2 emissions.  The magnitude of new CAFE improvements unfortunately only offset the projected growth in the population, LDV fleet size and LDV usage.  Another missed opportunity is that the new CAFE standards still provide large loopholes that hinder overall performance and do not adequately encourage higher efficiency LDV’s.  Review of AEO2012 LDV fleet mix indicates relatively small penetration of PHEV’s and EV’s by MY2025; the ultimate solution to reducing U.S. petroleum consumption, need for imports and reduced CO2 emissions.  As a result the LDV total fleet average fuel consumption is projected to grow modestly (Re. Table 1: Total LDV Fleet Gaso (consumption), MBD).                                                              

Most LDV manufacturers will likely generate significant CAFE (fuel efficiency) credits until at least MY2020.  These CAFE credits can then be traded, sold or applied to future years CAFE standard compliance.  Since the current new CAFE standards only extend to MY2025, the fleet average and new LDV fuel efficiencies will begin flattening or stagnating MY2025-35 similar to past CAFE regulation performance.  Unless current CAFE standards are further increased, no reduction in future oil imports or reduced CO2 should be expected beyond MY2025. 

Recommended New CAFE Standard Future Improvements – The current CAFE standards are subject to review and change every few years.  For the U.S. to significantly reduce LDV fleet petroleum consumption from projected AEO2012 levels the current new CAFE standard needs to be extended and increased substantially above the MY2025 level.  A separate analysis indicates if the LDV (unadjusted/lab.) CAFE standard was increased up to 75 mpg in MY2035 the U.S. could feasibly reduce total oil imports by about 2.8 MBD in CY2035.  This level of reduced oil imports could eliminate all highest risk OPEC Persian Gulf and over half of total OPEC imports.  Not only would U.S. energy security increase substantially, but total LDV fleet TTW CO2 would be reduced by about 365 million MT/yr., a 20% reduction of projected Transportation Sector CY2035 CO2 emissions (AEO2012). 

In addition, the current compliance loopholes need to be eliminated.  Manufacturers should be allowed to generate real credits for accelerating the production of more fuel efficient LDV’s ahead of CAFE standards.  The arbitrary credits for footprint, AFV/FFV, HEV, PHEV/EV, air conditioner upgrades, etc. that do not actually reduce petroleum consumption should be eliminated.  To simplify compliance with the future CAFE standards the EPA CO2/mile targets should be removed or transferred to a separate regulation.  Only real reductions in LDV petroleum consumption that result in real TTW CO2 reductions should be included in future regulations.  If the EPA is serious about actually reducing U.S. Transportation Sector CO2 emissions, this actual performance should not be inflated or distorted by arbitrary administrative CAFE/CO2 credit programs that do not tangibly reduce LDV petroleum consumption. 

In Conclusion – Despite the Obama Administration ‘window sticker’ confusing and inaccurate data the current new CAFE standards can definitely help reduce future LDV petroleum consumption.  Increased new CAFE standards need to be extended to at least MY2035and aggressively increased every year in order to significantly reduce future U.S. LDV total fleet fuel consumption, oil imports and CO2 emissions.  The Administration also needs to be honest with the Public.  Future high fuel efficient LDV’s will either be lighter, smaller and slower, or will cost substantially more to purchase and maintain.  Depending on the actual cost to produce future much higher fuel efficient LDV’s MY2017-2035 and required fueling (charging) infrastructure, the ability for the program to actually breakeven or generate consumer net savings is uncertain and requires further, critical study.  

If the U.S. does not successfully develop and implement effective CAFE standards in the future we will face possibly growing oil import risks and more limited options for reducing actual future CO2 emissions.  Failure of the CAFE regulatory strategy could result in alternative solutions similar to those commonly used in the EU: substantially increased motor fuel taxes, increased new vehicle and registration costs, smaller and poorer performing LDV’s, possibly some form of VMT taxes, and other operation/usage fees or restrictions.  The ultimate solutions and decisions to reduce the Transportation Sector’s petroleum consumption and associated CO2 will be made by future LDV consumers and the voters.