Federal Vehicle Standards

Background

Why Do We Need Vehicle Standards?

Vehicle Standards Timeline (1975-2007)

Recent Developments (2008-present)

Calculating CAFE Then and Now

For more information

Background

Federal vehicle standards save individual drivers money, help protect the environment, and improve U.S. energy security. They have existed since the 1970s and now include all on-road vehicles.

The U.S. National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA) issued the most recent standards for passenger vehicles (which consist of cars and light trucks and are also referred to as light-duty vehicles) in May of 2010. (The program also includes medium-duty passenger vehicles). The EPA and NHTSA estimate that the current Model Year (MY) 2012-2016 standards would increase average new light-duty vehicle prices by $476 per vehicle in MY 2012 to $1,091 per vehicle in MY 2016. These upfront costs would be more than offset by fuel savings: as a result of the standards, a vehicle owner would save more than $3,000 due to fuel savings over the lifetime of a MY 2016 vehicle (using U.S. Department of Energy estimates for fuel prices).

EPA and NHTSA estimate that over the lifetime of the vehicles sold during 2012 to 2016, the light-duty standards would reduce greenhouse gas (GHG) emissions by 950 million metric tons and save 1.8 billion barrels of oil. Reducing our overall oil consumption can reduce our reliance on foreign oil, which can also be translated into cost savings for the U.S. economy. A study by the U.S. EPA and the Oak Ridge National Laboratory estimated that a reduction of U.S. imported oil results in a total energy security benefitof $12.38 per barrel of oil. Here, energy security benefit means the benefit to the U.S. economy provided by less demand for oil.

Overall, the finalized standards would reduce GHG emission from the light-duty fleet by approximately 21 percent in 2030 versus the level that would occur in the absence of the national program.

More recently, the EPA and NHTSA issued the final rulemaking on August 9, 2011 for the Heavy-Duty National Program, though the program includes medium- and heavy-duty vehicles. The program should save an estimated 530 million barrels of oil and 270 million metric tons of carbon dioxide over the life of vehicles built for the model years included MY 2014-2018. The enhancements to these vehicles needed to achieve these oil savings should pay for themselves. The agencies estimate vehicle owners will save a net $42 billion over the life of these vehicles.

Why Do We Need Vehicle Standards?

U.S. fuel economy standards exist because individual drivers tend to value savings from fuel economy much less than society as a whole. Although the reasons are likely different, this applies to drivers of light-, medium-, and heavy-duty vehicles. The benefits to higher fuel economy include, but are not limited to, reduced impacts on global climate, improved energy security, and overall consumer savings. Standards for all vehicles would cover 80 percent of U.S. greenhouse gas (GHG) emissions from the transportation sector.

For individual drivers, the lack of a price signal on the societal impacts of oil consumption creates a vehicle market deficiency. This shortcoming leads to more oil consumption than otherwise would occur. The benefits of saving oil and reducing greenhouse gas emissions are much greater to society than to an individual driver. Fuel economy standards help correct this market deficiency.

Most people assume a dollar today is worth more than a dollar in the future since the dollar today can be invested and grown in value over time. The value people assign to a dollar in the future compared to a dollar today is known as the discount rate, or the rate of interest they would expect on a dollar invested today. For passenger cars, David Greene from Oak Ridge National Laboratory found that the value consumers place on fuel economy varies widely, but empirical research reveals a discount rate between 4 and 40 percent. For example, a discount rate of 20 percent means consumers assume they will make 20 percent interest annually on money invested today, which is unlikely. The societal discount rate is much closer to 4 percent, meaning consumers often undervalue fuel economy savings by many times more than society.

Vehicle Standards Timeline (1975-2007)

The U.S. federal government has regulated fuel economy through standards for passenger vehicles (cars and light-duty trucks) for decades. The 1973 Arab Oil Embargo prompted the U.S. Congress to pass legislation in 1975 that introduced the Corporate Average Fuel Economy (CAFE) standard for new passenger vehicles only. The original purpose of the CAFE standard was to improve the fuel economy of the passenger vehicle fleet in order to reduce to the amount of oil imported to the United States.

NHTSA within the U.S. Department of Transportation (DOT) administered the original CAFE program while EPA was responsible for establishing the testing and evaluation protocol for assessing the fuel economy standard (as measured in average miles per gallon of gasoline or mpg). EPA must also calculate the fuel economy for each manufacturer. These responsibilities are the same today.

CAFE is the sales-weighted average fuel economy (in mpg) of the passenger cars or light-duty trucks for a manufacturer’s fleet. See Calculating CAFE Then and Now below for details of how EPA determines compliance. NHTSA issues fines to manufacturers who are out of compliance. As of July 2011, NHTSA has collected almost $800 million in fines for the CAFE program.

Since 1975, a number of changes have been made to the standards. Figure 1provides an annotated history of the U.S. CAFE standards. A number of other countrieshave also instituted fuel economy standards, with some issuing more aggressive targets than the United States. See here for more details about international vehicle standards.

Figure 1: Fuel economy standard for passenger vehicles from Model Year 1978 to 2016. Source: NHTSA.

Under the Federal Clean Air Act, California is the only state with the ability to set air emission standards for motor vehicles, as long as these standards are as stringent as the federal standards and the state receives a waiver from the EPA. Once California receives an EPA waiver, other states can adopt California’s standards.

In 2002, California enacted the Clean Cars Law (AB 1493) to set vehicle emissions standards for GHGs. In April of 2007, the Supreme Court ruled that the EPA has the authority to regulate GHG emissions from the transportation sector under the Clean Air Act. In December of 2007, a judge threw out a lawsuit by automakers attempting to block California from implementing AB 1493. The intersection of fuel economy standards and GHG emission standards was beginning to become clear (see here for a complete timeline of vehicle GHG emission standards).

Recent Developments (2008-present)

Shortly after the Supreme Court decision in March 2008, the EPA denied a waiver to the state of California. President Obama immediately ordered the EPA to reconsider that denial upon taking office in January of 2009. In June of 2009, the EPA granted a waiver allowing California to regulate GHG emissions from vehicles within the state beginning with Model Year (MY) 2009. Shortly afterwards, on September 15, 2009, the EPA and DOT issued a joint proposal to establish new vehicle standards for MY 2012 to MY 2016, which were finalized on April 1, 2010. California promptly agreed to adopt the federal standards.

The standards, finalized on April 2010, cover passenger cars, light-duty trucks, and medium-duty passenger vehicles, from MY 2012 through 2016. The standards are based on the vehicle’s footprint, which is a measure of vehicle size (see Calculating CAFE Then and Now). 

As seen in Table 1, the greenhouse gas (GHG) standard from EPA requires vehicles to meet a target of 250 grams of carbon dioxide equivalent (CO₂e) per mile in MY 2016, equivalent to 35.5 mpg if the automotive industry meets the target through only fuel economy improvements.

Table 1:Projected Emissions Targets under the GHG Standards (g CO₂e/mi)

As seen in Table 2, the fuel economy standard from NHTSA requires vehicles to meet an estimated combined average of 34.1 mpg in 2016. This estimate is slightly lower than the 35.5 mpg target for 2016, because it assumes that manufacturers will take advantage of flexibility available under the law designed to reduce the cost of compliance. These provisions include early compliance in 2009 to 2011, air conditioning system technology that reduce other GHGs (such as hydrofluorocarbons or HFCs), flexible fuel vehicle deployment, advanced technologies, and credit transfers.

Table 2: Projected Fuel Economy Standard (mpg)

In addition to light-duty vehicles, the NHTSA and EPA released medium- and heavy-duty vehicle standards for MY 2014 to MY 2018 in August of 2011. These standards for tractor-trailers, buses, etc., are the first of their kind in the world. The standards are divided into three segments:

1. Heavy-duty trucks responsible for almost two-thirds of fuel consumption from this segment, known as tractor-trailers, will have to achieve about a 20 percent reduction in fuel consumption by MY 2018, or about 4 gallon of fuel every 100 miles traveled.
2. Heavy-duty pickup trucks and vans will have to improve fuel economy by 15 percent by MY 2018, or one gallon of fuel per 100 miles traveled
3. Vocational vehicles (delivery trucks, buses, garbage trucks) will have to improve fuel economy by 10 percent by MY 2018, or about one gallon of fuel per 100 miles traveled.

NHTSA and EPA designed the standards based on the kind of work the vehicles undertake. Heavy-duty pickup trucks and vans must meet a standard similar to passenger vehicles, gallons of fuel per mile and grams of CO₂e per mile. The other two categories must meet a standard based on the amount of weight being hauled (fuel consumed or grams of CO₂e emitted per ton-mile per ton of freight hauled).

Further, the Obama Administration announced plans to issue new fuel economy standards for light-duty vehicles for MY 2017 to MY 2025. These standards could be as high as 54.5 mpg in 2025.

Calculating CAFE Then and Now

Each automaker’s fleet-wide average fuel economy consists of three potential fleets: domestic passenger cars, imported passenger cars, and light-duty trucks. (The breakup of domestic and imported cars exists to support domestic automobile production.) With its focus on fuel efficiency, , the standard must capture the fuel economy of each vehicle traveling the same number of miles. The harmonic mean of the fleet accomplishes this task (versus the simpler arithmetic mean). That is, instead of dividing the sum of the fuel economy rates in mpg for each vehicle by the total number of vehicles (the arithmetic mean), the reciprocal of the arithmetic mean is used as follows:

Where Production is the number of vehicles produced for sale for each model and TARGET is the fuel economy target for the vehicle.

Before 2008, the target fuel economy was simply the fuel economy of the vehicle in mpg. In 2008, NHTSA changed the target to a bottom-up one based on attributes of each vehicle instead of a top-down uniform target across an entire automaker’s fleet. The vehicle footprint target is determined as follows:

Where FOOTPRINT is the product of the vehicle’s wheelbase and average track width in square feet, a and b are high and low fuel economy targets that increase from 2012 to 2016 and are constant for all vehicles, and c and d are adjustment factors. The values of these parameters are detailed in the table below:

Table 3: Parameters for calculating light-duty vehicle fuel economy target

The idea behind an attribute-based standard is that the level of difficulty of meeting the standards is the same for smaller and larger vehicles. For a uniform standard, smaller vehicles (i.e., those with a smaller footprint) are more capable of achieving higher standards than larger vehicles.

 For more information

• Greene, D. (2010, February 9-10). Why the Market for New Passenger Cars Generally Undervalues Fuel Economy. Retrieved August 5, 2011, from International Transport Forum.
• EPA Office of Transportation and Air Quality Regulations and Standards
• NHTSA CAFE Program
• Vehicle GHG Standards State Map
• Transportation Sector Emissions Overview
• Comparison of Actual and Projected Fuel Economy for New Passenger Vehicles