With historically low gasoline prices here in the United States and with the country pretty much awash in crude oil and natural gas due to recent technological advances in oil exploration, fuel economy might not seem that important to you and your pocketbook. So you might be wondering why the automakers continue to develop alternative fuel vehicles, increasingly sophisticated all-electric and electric/ gasoline hybrid vehicles and laboring to dramatically improve overall fuel economy. The answer is called the Corporate Average Fuel Economy standards (CAFE) and the magic year is 2025, but more on that in a bit.
The CAFE standards were first enacted by the U.S. Congress in 1975, in the wake of the Arab Oil Embargo and intended to improve the average fuel economy of cars and light trucks (trucks, vans and sport utility vehicles) produced for sale in the United States. The Energy Policy and Conservation Act (EPCA), as amended by the 2007 Energy Independence and Security Act (EISA), requires that the U.S. Department of Transportation (DOT) establish standards separately for passenger automobiles (passenger cars) and non passenger automobiles (light trucks) at the maximum feasible levels in each model year, and requires that DOT enforce compliance with the standards. Coverage of medium duty trucks were added to the CAFE regulations starting in 2012, and heavy duty commercial trucks in 2014.
DOT has delegated these responsibilities to the National Highway Traffic Safety Administration (NHTSA). The EISA also called for a reform where the standards set by the Transportation Department would be are “attribute based” so as to ensure that the safety of vehicles is not compromised for higher standards.
The CAFE standards in a given model year define the CAFE levels that manufacturers’ fleets are required to meet in that model year, specific levels depending on the characteristics and mix of vehicles produced by each manufacturer. If the average fuel economy of a manufacturer’s annual fleet of vehicle production falls below the applicable requirement, the manufacturer must either apply sufficient CAFE credits to cover the shortfall or pay a penalty, currently $5.50 USD per 0.1 mpg under the standard, multiplied by the manufacturer’s total production for the U.S. domestic market.
Additionally, a Gas Guzzler Tax is levied on individual passenger car models (but not trucks, vans, minivans, or SUVs) that get less than 22.5 miles per US gallon.
Starting in 2011 the CAFE standards were changed to be expressed as mathematical functions depending on vehicle “footprint”, a measure of vehicle size determined by multiplying the vehicle’s wheelbase by its average track width. CAFE footprint requirements are set up such that a vehicle with a larger footprint has a lower fuel economy requirement than a vehicle with a smaller footprint.
On July 29, 2011, President Obama announced an agreement with thirteen large automakers which together account for over 90% of all vehicles sold in the United States to increase fuel economy to 54.5 miles per gallon for cars AND light-duty trucks by model year 2025. The agreement will result in new CAFE regulations for model year 2017-2025 vehicles which were finalized on August 28, 2012. The major increases in stringency and the changes in the structure of CAFE create a need for research that incorporates the demand and supply sides of the new vehicle market in a more detailed manner than ever before.