New car rules get it right on energy, the environment and the economy

Today the federal government issued vehicle fuel economy [2] and greenhouse gas standards [3] that enjoy broad support from automakers [4], auto workers [5], environmental groups [6], and consumers [7]. Why is everyone so happy, when the idea of regulation is anathema to so many? It’s both because of what the rules do, and how they do it.

As a result of these new standards, we will see the fuel economy of the average new vehicle increase by up to 90 percent by 2025. That will save each car buyer thousands of dollars in fuel costs. We’ll also see greenhouse gas emissions from the average new vehicle decrease 40 percent.

This represents the single largest step ever by the federal government aimed at reducing the carbon emissions that are warming the planet.

The new rules achieve these important goals by setting tough environmental and energy objectives, but leaving it to businesses to innovate to achieve them. This flexibility means that consumers will still have a wide choice of vehicles in the marketplace.

Let’s first talk about what the standards do:

• Dramatically increase fuel economy for new vehicles by 2025. New vehicle standards will begin ramping up in model year 2017. By 2025, fuel economy for new cars and light trucks will be at least 90 percent better than it was in 2011 -- from 28.6 mpg today to up to 54.5 mpg depending on how the automakers achieve compliance. To put this in perspective [8], the original corporate average fuel economy standard (CAFE) improved passenger vehicles by 63 percent from 1975 to 1985.
• Cut greenhouse gas emissions from the average new vehicle by 40 percent. The average new vehicle in 2011 emits 271 grams per mile; in 2025 it will emit 163 grams per mile. The new standards will make an important contribution to climate protection, reducing U.S. transportation carbon dioxide emissions by 10 percent by 2035.
• Save consumers money. A new car buyer will save about $8,000 over the life of a 2025 vehicle compared to today’s car.
• Cut annual U.S. gasoline consumption by 26 percent by 2035: This is good news for energy security and the economy. The standards are expected to reduce oil imports by almost 2 million barrels per day in 2025 from today’s levels, improving the U.S. trade balance by nearly $100 billion that year.
• Create U.S. jobs. EPA estimates [9] 39,000 new jobs are possible to design and integrate efficiency technologies into new vehicles, with others estimating [10] that economic ripple effects could lead to many times more jobs.
• Drive innovation in fuel efficiency and alternative fuels. The new standards reward companies that achieve the best environmental and energy efficiency performance through whatever means they choose - from improvements to conventional engines to completely new electric or hydrogen vehicles.

And how do they do it?

• Simplify compliance. The standards are a joint effort between the National Highway Traffic Safety Administration (NHTSA) and Environmental Protection Agency (EPA). NHTSA regulates fuel economy and EPA regulates greenhouse gas emissions. These are tough standards, but by harmonizing their rules with one another and with California, which has the right to set its own rules, EPA and NHTSA have dramatically simplified compliance for automakers. A single standard for the entire country is very important to an automaker.
• Incorporate flexibility. EPA and NHTSA took full advantage of the flexibility afforded by the Clean Air Act and the Energy Independence and Security Act of 2007 [11]. The Clean Air Act is well-suited to reducing greenhouse gas emissions from cars and trucks. Because the new rules allow emission and efficiency averaging and credit trading [12], including additional credits for advanced technologies like electric vehicles, it is up to automakers to decide which technologies to pursue and on which vehicles to focus their most aggressive efforts. The standards adjust based on a vehicle’s “footprint,” [12] meaning automakers are not penalized for offering a range of vehicle sizes, preserving their own marketing flexibility and consumer choice.

By itself, the market can’t drive innovation toward public benefits like energy security and environmental protection. But businesses know best how to reduce fuel use and emissions cost-effectively. These rules succeed because they are flexible enough to allow automakers to innovate and align their business interests with societal ones like meeting our urgent energy and environmental challenges.