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Corporate Average Fuel Economy (CAFE) Standards

Corporate Average Fuel Economy (CAFE) Standards Jennifer Alexander Spring 2008 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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Corporate Average Fuel Economy (CAFE) Standards

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  1. Corporate Average Fuel Economy (CAFE) Standards Jennifer Alexander Spring 2008

  2. 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

  3. EnergyPolicy 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

  4. 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.

  5. 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

  6. “Maximum Feasible Fuel Economy Standards” EPCA dictates that DOT’s 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)

  7. 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 highways…and 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)

  8. 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]

  9. 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 Fleet’s Fuel Economy =

  10. How is fuel economy determined? • 3 sets of calculations: NHTSA’s figures, EPA’s unadjusted dynamometer values, and EPA’s 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).

  11. Ann Arbor, MI Chevy Silverado being tested in dynamometer

  12. EPA’s new fuel economy stickers • New test methods (appearing on MY2008 stickers) will bring estimates closer to actual fuel economy byfactoring 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

  13. Penalties • If average fuel economy of a manufacturer’s 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)

  14. 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

  15. 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.

  16. -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 Alternative Fuel Vehicles

  17. 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 Light Trucks

  18. 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 project”1, 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.

  19. 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.

  20. Unreformed CAFE standards up to 2011

  21. Reformed Standards for LDT’s • Fuel Economy standard no longer one uniform number, but based on “footprint” of car- product of vehicle’s 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

  22. Smaller footprint trucks had higher targets, larger footprint trucks had lower fuel economy targets • Manufacturer’s 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

  23. Proposed Reformed CAFE Standards (miles per gallon) (from Notice of Proposed Rulemaking, but not actually adopted.)

  24. 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.

  25. 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 rule’s cumulative impact. • NHTSA must prepare EIS, not just EA

  26. 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 9th Circuit overturns NHTSA rules

  27. 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

  28. 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 Energy Independence and Security Act of 2007 .

  29. 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

  30. 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 doesn’t come at the expense of safety

  31. April 22 Update(Earth Day…coincidence?) • 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

  32. 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?

  33. Implications and thoughts (cont’d.) • 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 Congress’s goals?

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