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Thursday, September 20, 2012

Automobile and Truck Fuel Economy (CAFE) and Greenhouse Gas Standards

Brent D. Yacobucci
Section Research Manager

Bill Canis
Specialist in Industrial Organization and Business

Richard K. Lattanzio
Analyst in Environmental Policy

In recent years, as oil and gasoline prices have risen and concerns over greenhouse gas emissions and climate change have grown, there has been a resurgence of interest in the fuel economy and emissions of motor vehicles in the United States. Federal fuel economy and greenhouse gas standards have become a focal point for addressing these concerns. The debate over rising fuel efficiency and greenhouse gas standards for passenger vehicles and heavy trucks has been controversial. Proponents of higher fuel economy argue that new standards will create incentives for the development of new technologies that will help reduce oil consumption and limit greenhouse gas emissions. Critics argue that these standards will impose regulatory costs which will distort the market for new vehicles, and that other policy mechanisms would be more effective at reducing petroleum consumption and emissions (e.g., higher fuel taxes).

On August 28, 2012, the Obama Administration issued new passenger vehicle fuel economy and greenhouse gas standards for vehicle model years (MY) 2017-2025. The National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) expect that combined new passenger car and light truck Corporate Average Fuel Economy (CAFE) standards will rise to as much as 41.0 miles per gallon (mpg) in MY2021 and 49.7 mpg in MY2025, up from 34.1 mpg in MY2016. To the extent possible, new CAFE standards will be integrated with federal and state greenhouse gas (GHG) standards for automobiles, because fuel economy improvements are a key strategy for reducing vehicle emissions. If all of the GHG reductions were made through fuel economy improvements, the equivalent miles-per-gallon requirement would be 54.5 mpg in MY2025. However, other strategies will also be used (for example, improved vehicle air conditioners) to reduce GHG emissions to the actual GHG standard of 163 grams of carbon dioxide per mile.

The Administration expects that consumers’ fuel savings from the new standards will more than offset the additional cost of the new technology for these vehicles, which could be thousands of dollars per vehicle. EPA and NHTSA expect that the new standards will save roughly 4 billion barrels of oil and 2 billion metric tons of greenhouse gases over the life of the vehicles covered under the proposal. Critics dispute some of the Administration’s assumptions. They counter that the costs will be higher and could lead to a drop in new vehicle sales, as the higher vehicle costs may put new car financing out of reach for many consumers.

In a similar process to an earlier Obama Administration agreement that led to new fuel economy and greenhouse gas standards for MY2012-MY2016, the Administration has secured commitment letters from the state of California and from 13 automakers to support the MY2017-2025 rulemaking as well. There has been concern about a potential “patchwork” of different federal and state standards if EPA, NHTSA, and California were to establish different standards on fuel economy and GHG emissions. Two key parts of the agreement are that California will treat any vehicle meeting the new federal GHG standards as meeting California standards, and that the automakers agree to not challenge the new standards in court.

In August 2011, the Administration also tightened fuel economy and GHG emissions standards for MY2014-MY2018 medium- and heavy-duty trucks.

Date of Report: September 11, 2012
Number of Pages: 15
Order Number: R42721
Price: $29.95

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