The Nuts and Bolts of the New CAFE and GHG Vehicle Standards

This is Part 2 of a series on the new EPA-DOT vehicle greenhouse gas (GHG) and fuel economy standards. Part 1 took a first look on the goals of the standards.

These days, most cars can go from 0 to 60 mph in a pretty short time – but can the nation’s car fleet go from 27.3 to 49.5 mpg in 15 years flat?

As we mentioned in Part I, a 49.5 mpg CAFE standard (or 54.5 mpg by the EPA’s calculation) is the new vehicle standard for 2025. Considering that the current CAFE level is 27.3 mpg, closing the 20 mpg gap will need some pretty quick acceleration, efficiency-wise.

Though the new standard may seem daunting, the key takeaway is that passenger vehicles will use many technologies we already know about and still deliver the freedom of mobility and convenience found in today’s cars. In fact, most of the fleet will still be powered by diesel and gasoline but with under-the-hood technological improvements that improve the bang for each buck of gas.

The Footprint Factor

Different vehicles will have different efficiency standards depending on their “footprint,” which essentially measures the size of the vehicle. Vehicles with larger “footprints” like pickup trucks and SUVs have lower standards than passenger vehicles.

Previously, light trucks and passenger vehicles had separate standards, with light trucks having much lower standards than smaller vehicles. As it turns out, the lower standards for light trucks incentivized a stagnant fuel economy even as fuel efficiency technology improved by leaps and bounds. Efficiency technology was used to increase engine power instead of mpg in light trucks. As Americans became increasingly interested in big, powerful vehicles, the low standards for trucks fed this interest even more.

The “footprint” model still contains different standards for different vehicles, but the new standards calculate a fuel economy for each vehicle based on its footprint as opposed to creating two blanket categories. And unlike before, even larger vehicles known as “light trucks” will have higher efficiency bars than the current CAFE truck standard of 24.1 mpg – moving to 40 mpg by 2025.

Certain manufacturers without SUVs or pickup trucks, such as Volkswagen, are still wary that big vehicles continue to have lower targets. For example, whereas smaller passenger vehicles are required to improve efficiency by 5 percent each year until 2025, larger vehicles get to improve at a slower 3.5 percent rate until 2022 and at 5 percent thereafter until 2025. Overall, however, the slower rate of improvement is in response to light truck manufacturers’ concern that they would be unable to recoup costs from the efficiency improvements.

Midterm revision

The rules include the potential for a midterm revision of standards before 2025 – a review for 2022-2025 standards that will occur around 2018. The EPA, NHTSA, and the California Air Resources Board, which agreed to conform its state standards to the new federal standards, will perform the review. The review might raise standards but might also lower standards to accommodate renewed consumer interest in less fuel-efficient cars or lowered gas prices. But even with the review, the standards are guaranteed for at least a decade.

Flexible Credits

The most complicated component of the new standards is the credit system and accounting for air conditioning improvements in measurements of vehicle efficiency. “Carry-forward credits” are awarded whenever a manufacturer’s sales-weighted fuel economy beats the standard for the year, and can be used towards meeting any future standards for five years afterwards. This ensures that bad economic years or capricious consumer tastes do not unfairly penalize the manufacturer. Moreover, if a certain vehicle is able to surpass the standard for the year, it can be used to help a laggard in the same fleet meet its standard – known as “cross-fleet credits.” Finally, credits can also be traded between manufacturers. Such flexibility is needed to make sure that a doubling in efficiency is cost-effective.

Besides allowing for important flexibility in complying with the standards, the credit system also ensures that technologies like air conditioning improvements that increase fuel economy will be encouraged, as long as they are testable (p. 74899). EPA may award credits for technologies that improve fuel economy during real-life driving scenarios that may be different from the standard test cycle. For example, as EPA expects air conditioning to be a big factor in reducing greenhouse gas emissions and increasing fuel economy, manufacturers will earn credits for more efficient air conditioning systems.

Moreover, EPA and NHTSA have created a category of innovative “off-cycle” technologies that reduce emissions and increase efficiency. Any technology that can be verified to increase efficiency counts for credit, including start-stop systems (like those found in the Prius), grill shutters, high efficiency lights, active engine and transmission warm up, and active aerodynamics (“smart” structures that actively turn air away and reduce drag).

Pick-up trucks get assigned extra credits for having a certain list of hybrid technologies beyond start-stop technology such as advanced transmission. Such credits are only awarded if “mild hybrid” pickups comprise at least 30 percent of all new vehicles in 2017 and increase to 80 percent by 2021. After that, the credit disappears. “Strong hybrids” that can run solely on electric power get extra credit through 2025 as long as they comprise at least 10 percent of the new truck fleet.

Finally, alternative-fuel vehicles including electric, plug-in hybrid, and fuel-cell vehicles get significant extra credit toward meeting the standards. In making its calculation for electric vehicles, EPA ignores carbon emissions from power plants and rates electric miles as 0 g CO2/mile. Moreover, the sales weight of fuel cell and electric vehicles is given a multiplicative factor of 2 in 2017 (the sales weight is 1 prior to 2017), meaning alternative fuel vehicles ramp up the fleet fuel economy in a pretty big way and thus allow for a significant amount of credit to be accumulated. The sales weight factor of plug-in hybrids will start at 1.6 in 2017 and gradually ramp down to 1.3 in 2021. These factors do favor such technologies, but only to the extent of helping to overcome major disadvantages they face in the existing marketplace. They are needed to catalyze innovation in the market (although some are wary that this huge credit would allow so large of an offset that manufacturers can continue to produce low-efficiency trucks and SUVs en masse).

Meanwhile, flex-fuel and ethanol vehicles would receive extra credit only if manufacturers show numbers proving that drivers use the alternative fuels. This is a step in the right direction and discourages simply putting in a flex-fuel engine that’s never used. Moreover, the 1993 incentives for vehicles that run exclusively on natural gas or ethanol remain in place – a vehicle getting 15 mpg by natural gas or another alternative fuel is considered to have a 100 mpg fuel economy.

Challenging but reachable standards

Given these credits, one way to meet the standards is for hybrid technologies to permeate through a significant chunk of the future vehicle fleet, including bigger vehicles. Trucks may get started in the next few years by employing non-hybrid technologies that are standard in lighter vehicles, such as four-cylinder engines. Weight might also play a big part as well, as light-weight yet durable material such as carbon fiber and aluminum increasingly become cost-effective. And though the Administration hopes to incentivize production of fuel cell and electric vehicles, they are expected to comprise less than 10 percent of the fleet for most scenarios, according to EPA-NHTSA.

Regardless of which assumptions are made, it seems likely that improved gasoline and diesel vehicles will make up most of the 2025 vehicle fleet – the EPA-NHTSA analysis linked above has the proportion of conventional vehicles hover around 50 percent in most scenarios, with the exception of those that beat fuel economy standards by quite a bit.

The important takeaway is the vast majority of vehicles won’t require exotic technologies. Don’t expect to see too many flying cars or booster rockets.

So 27.3 to 49.5 in 15 years flat? Fuel-efficient vehicles are integral to the energy future of the country, and CAFE offers a strong yet flexible standard with some good incentives to make sure we get there. It will be a challenge but auto manufacturers are up to it.

Charles Zhu is a Solutions Fellow at C2ES.