Corporate Average Fuel Economy Totally Explained

Everything about The Corporate Average Fuel Economy totally explained

The Corporate Average Fuel Economy (CAFE) regulations in the United States, first enacted by Congress in 1975, are federal regulations intended to improve the average fuel economy of cars and light trucks (trucks, vans and sport utility vehicles) sold in the US in the wake of the 1973 Arab Oil Embargo. Historically, it's the sales-weighted harmonic mean fuel economy, expressed in miles per gallon (mpg), of a manufacturer's fleet of current model year passenger cars or light trucks with a gross vehicle weight rating of 8,500 pounds (3,856 kg) or less, manufactured for sale in the United States. This system would have changed with the introduction of "Footprint" regulations for light trucks binding in 2011, except that the 9th Circuit Court of Appeals has returned that rule to NHTSA for reconsideration for, among other things, being "arbitrary and capricious". Light trucks that exceed 8,500 lb GVWR don't have to comply with CAFE standards; SUVs and passenger vans are exempt up to 10,000 lb. In 1999, over half a million vehicles exceeded the GVWR and the CAFE standard didn't apply to them. In 2011, the standard will change to include many larger vehicles. The United States has the lowest average fuel economy among first world nations; the European Union and Japan have fuel economy standards about twice as high as the United States.
The National Highway Traffic Safety Administration (NHTSA) regulates CAFE standards and Environmental Protection Agency (EPA) measures vehicle fuel efficiency. Congress specifies that CAFE standards must be set at the "maximum feasible level" given consideration for 1) technological feasibility; 2) economic practicality; 3) effect of other standards on fuel economy; and 4) need of the nation to conserve energy. Historically EPA has encouraged consumers to buy more fuel efficient vehicles while NHTSA expresses concerns that smaller, more fuel efficient vehicles may lead to increased traffic fatalities.
If the average fuel economy of a manufacturer's annual fleet of car and/or truck production falls below the defined standard, the manufacturer must 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. Historically, higher fuel efficiency has been associated with lower traffic safety, intertwining the issues of fuel economy, road-traffic safety, air pollution, global warming and greenhouse gases, although this relationship is falling increasingly into dispute.

Effect on automotive fuel economy

In 2002, a committee of the National Academy of Sciences wrote a report on the effects of the CAFE standard. albeit with certain of the committee members dissenting.
A plot of average overall vehicle fuel economy (CAFE) for new model year passenger cars, the required by law CAFE standard target fuel economy value (CAFE standard) for new model year passenger cars, and fuel prices, adjusted for inflation, shows that there has been little variation over the past 20 years. Within this period, there are three distinct periods of fuel economy change. (1) from 1979-1982 the fuel economy rose as the price of fuel rose dramatically; (2) from 1984-1986 the fuel economy rose as the CAFE standard rose; (3) from 1986-1988 the fuel economy rose even as the price of fuel fell and the CAFE standard was relaxed due to pressure from US automakers before returning to 1986 levels in 1990. These are following by an extended period during which the passenger car CAFE standard, the observed average passenger car fuel economy, and the price of gasoline remained stable, and finally a period when prices rose dramatically and fuel economy was relatively unchanged.
Simple economics would predict that an increase in gasoline prices would lead in the long run to an increase in the average fuel economy of the US passenger car fleet, and that a drop in gasoline prices would be associated with a reduction in the average fuel economy of the entire US fleet. There is some evidence that this happened with an increase in market share of lower fuel economy light trucks and SUVs and decline in passenger car sales, as a percentage of total fleet sales, as car buying trends changed during the 1990s, the impact of which isn't reflected in this chart. In the case of passenger cars, US average fuel economy didn't fall as economic theory would predict, suggesting that CAFE standards maintained the higher fuel economy of the passenger car fleet during the long period from the end of the 1979 energy crisis to the rise of gasoline prices in the early 2000s. Most recently, fuel economy has increased about one mpg from 2006 to 2007. This increase is due primarily to increased fuel efficiency of imported cars. Similarly, Simple Economics predicts that due to the US's large percentage consumption of the world's oil supply, that increasing fuel economy would drive down the gasoline prices that US consumers would otherwise have to pay -- reductions in petroleum demand in the United States helped create the collapse of OPEC market power in 1986.

Calculation

Fleet fuel economy is calculated using a harmonic mean, not a simple arithmetic mean (or "average"). The two fleet rule for light trucks was removed in 1996.
Fuel economy calculation for alternative fuel vehicles multiplies the actual fuel used by a "Fuel Content" Factor of 0.15 as an incentive to develop alternative fuel vehicles. Dual-fuel vehicles, such as E85 capable models, are taken as the average of this alternative fuel rating and its gasoline rate. Thus a 15 mpg dual-fuel E85 capable vehicle would be rated as 40 mpg for CAFE purposes, in spite of the fact that less than one percent of the fuel used in E85 capable vehicles is actually E85.
Manufacturers are also allowed to earn CAFE "credits" in any year they exceed CAFE requirements, which they may use to offset deficiencies in other years. CAFE credits can be applied to the three years previous or three years subsequent to the year in which they're earned. The reason for this requirement is so that manufacturers are penalized only for persistent failure to meet the requirements, not for transient noncompliance due to market conditions.

Current standards

Cars and light trucks are considered separately for CAFE and are held to different standards. As of early 2004, the average for cars must exceed 27.5 mpg, and the light truck average must exceed 20.7 mpg. Trucks under 8500 pounds must average 22.5 mpg in 2008, 23.1 mpg in 2009, and 23.5 mpg in 2010. After this, new rules set varying targets based on truck size "footprint."
   In late 2007, CAFE standards received their first overhaul in more than 30 years. On December 19, President Bush signed into law the Energy Independence and Security Act of 2007, which requires in part that automakers boost fleetwide gas mileage to 35 mpg by the year 2020. This requirement applies to all passenger automobiles, including "light trucks." Politicians had faced increased public pressure to raise CAFE standards; a July 2007 poll conducted in seven states revealed 84-90% in favor of legislating mandatory increases.
   Overall fuel economy for both cars and light trucks in the U.S. market reached its highest level in 1987, when manufacturers managed 26.2 mpg (8.98 L/100 km). The average in 2004 was 24.6 mpg. In that time, vehicles increased in size from an average of 3,220 pounds to 4,066 pounds (1,461 kg to 1,844 kg), in part due to an increase in truck ownership during that time from 28% to 53%.
   A number of manufacturers choose to pay CAFE penalties rather than attempt to comply with the regulations. As of model year 2006, BMW, DaimlerChrysler, Volkswagen, Ferrari, Porsche and Maserati failed to meet CAFE requirements.

Future

The CAFE rules for trucks were officially amended at the end of March 2006. However, the 9th Circuit Court of Appeals has overturned the rules, returning them to NHTSA, stating that the rules must be made stricter. These changes would have segmented truck fleets by vehicle size and class as of 2011. All SUVs and passenger vans up to 10,000 pounds GVWR would have had to comply with CAFE standards regardless of size, but pickup trucks and cargo vans over 8500 pounds gross vehicle weight rating (GVWR) would have remained exempt.
   Under the new final light truck CAFE standard 2008-2011, fuel economy standards would have been restructured so that they're based on a measure of vehicle size called "footprint," the product of multiplying a vehicle's wheelbase by its track width. A target level of fuel economy would have been established for each increment in footprint using a continuous mathematical formula. Smaller footprint light trucks had higher fuel economy targets and larger trucks lower targets. Manufacturers who made more large trucks would have been allowed to meet a lower overall CAFE target, manufacturers who make more small trucks would have needed to meet a higher standard. Unlike previous CAFE standards there was no requirement for a manufacturer or the industry as a whole to meet any particular overall actual MPG target, since that will depend on the mix of sizes of trucks manufactured and ultimately purchased by consumers. Some critics pointed out that this might have had the unintended consequence of pushing manufacturers to make ever-larger vehicles to avoid strict economy standards. However, the equation used to calculate the fuel economy target had a built in mechanism that provides an incentive to reduce vehicle size to about 52 square feet (the approximate midpoint of the current light truck fleet.)
   The Ninth Circuit Court of Appeals found these new Light Truck rules to be arbitrary and capricious; contrary to the Environmental Pollution Control Act; incorrectly set a value of zero dollars to the global warming damage caused by truck emissions; failed to set a "backstop" to prevent trucks from emitting more CO2 than in previous years; failed to set standards for vehicles in the 8,500 to 10,000 lb range; that the environmental impact assessment was inadequate, and that the rules may have had significant negative impact on the environment. The court directed NHTSA to prepare a new standard as quickly as possible and to fully evaluate that new standard's impact on the environment It isn't clear how the 9th Circuit Court of Appeals case will interact with these new rules. The new rules also introduce the "Footprint" model for cars as well as trucks, where if a manufacturer makes more large cars and trucks that'll be allowed to meet a lower standard for fuel economy. This means that an overall fuel efficiency for a particular manufacturer nor the fleet as a whole can't be predicted with certainly since it'll depend on the actual product mix manufactured. However, if the product mix is as NHTSA predicts, car fuel economy would increase from a current standard of 27.5 MPG to 31.0 MPG in 2011. The new regulations are designed to be "optimized" with respect to a certain set of assumptions which include: gas prices in 2016 will be $2.25 a gallon, all new car purchasers will pay 7% interest rates on their vehicles purchases, and only care about fuel costs for the first 5 years of a vehicle's life, and that the value of global warming is $7 per ton CO2. This corresponds to a global warming value of $4.31 savings a year per car under the new regulations. Further, the new regulations assume that no advanced hybrids (Toyota Prius), plug-in hybrids (Chevy Volt), electric cars (Th!nk City), nor alternative fuel vehicles (Honda Civic GX) will be used to achieve these fuel economies. The new rules also propose again that California (and the other States following California's lead) be stripped of their historic right to set their own more stringent automotive air pollution standards.
   There are a large number of technologies that manufacturers can apply to improve fuel efficiency short of implementing hybrid or plug-in hybrid technologies. Applied aggressively, at a cost of several thousand dollars per vehicle, the National Transportation Board of the National Academy of Sciences estimates that these technologies can almost double MPG.
   Some technologies, such as four valves per cylinder, are already widely applied in cars but not trucks. Manufacturers dispute how effective these technologies are, their retail price, and how willing customers are to pay for these improvements. Payback on these improvements is highly dependent on gas prices.

Active debate

CAFE doesn't directly offer incentives for customers to choose fuel efficient vehicles, nor does it directly affect fuel prices. Rather, it attempts to accomplish these goals indirectly by making it more expensive for automakers to build inefficient vehicles by introducing penalties, and since the US represents such a large fraction of world consumption, reducing US fuel consumption indirectly reduces worldwide gasoline prices.
CAFE advocates assert most of the gains in fuel economy over the past 30 years can be attributed to the standard itself, while opponents assert economic forces are responsible for fuel economy gains, where higher fuel prices drove customers to seek more fuel efficient vehicles. CAFE standards have come under attack by some conservative think tanks, along with safety experts, car and truck manufacturers, some consumer and environment groups, and organized labor.

Effect on traffic safety

Historically, NHTSA has expressed concerns that automotive manufacturers will increase mileage by reducing vehicle weight, which might lead to weight disparities in the vehicle population and, increased danger for occupants of lighter vehicles. However, vehicle safety ratings are now made available to consumers by NHTSA and by the Insurance Institute for Highway Safety. A National Research Council report found that the standards implemented in the 1970s and 1980s "probably resulted in an additional 1,300 to 2,600 traffic fatalities in 1993. The Insurance Institute for Highway Safety's 2007 data show a correlation of about 250-500 fatalities per year per MPG. They argue that the quality of the engineering design is the prime determinant of vehicular safety, not the vehicle's mass. In a 1999 article based on a 1995 IIHS report, USA Today said that most deaths (56 percent) occurring in small cars were due to single vehicle crashes, not collisions with larger vehicles. The percentage of deaths attributed to those in small cars being hit by larger cars was one percent. In 2006, IIHS found that some of the smallest cars have good crash safety, while others do not, depending upon the engineering design. In a 2007 analysis, IIHS found that 50 percent of fatalities in small four-door vehicles were single vehicle crashes, compared to 83 percent in very large SUVs. The Mini Cooper had a fatality rate of 68 per million vehicle-years, compared to 115 for the Ford Excursion. Recent studies find about 75 percent of two-vehicle fatalities involve a truck, and about half these fatalities involve a side-impact crash. Risk to the driver of the other vehicle is almost 10 times higher when the vehicle is a one ton pickup compared to an imported car. And a 2003 Transportation Research Board study show greater safety disparities among vehicles of differing price, country of origin, and quality than among vehicles of different size and weight. These more recent studies tend to discount the importance of vehicle mass to traffic safety, pointing instead to the quality of engineering design as the primary factor.

Increased oil and automobile usage

As fuel efficiency rises, people drive their cars more, which offsets some of the gains that might be had in carbon dioxide emissions from the higher standards. While driving more results from the increased economic benefit to consumers of higher efficiency vehicles, the National Academies Report (Page 19) and lower the probability of global climate change by reducing US emissions of carbon dioxide.

Economic arguments

In the May 6, 2007 edition of Autoline Detroit, Bob Lutz asserted that the CAFE standard was a failure and said it was like trying to fight obesity by requiring tailors to make only small-sized clothes. Conservationist proponents of higher gas mileage counter that NHTSA prevents importation of three dozen such small-sized vehicles from Europe.
Proponents also state that automobile-purchasing decisions that may have global effects shouldn't be left entirely up to individuals operating in a free market.
Automakers have said that small, fuel-efficient vehicles cost the auto industry billions of dollars. They cost almost as much to design and market but can't be sold for as much as larger vehicles such as SUVs, because consumers expect small cars to be inexpensive.

Automaker viewpoints & consumer preferences

Historically, automakers and some conservative groups have believed consumers don't prioritize fuel economy. In 2003, Alliance of Automobile Manufacturers spokesman Eron Shosteck asserted automakers produce more than 30 models rated at 30 mpg or more for the US market, and they're poor sellers. In 2004, GM retiree Charles Amann said statistically, consumers don't pick the weak-performing vehicle when given a choice of engines. However, a 2006 Consumer Reports survey concluded fuel economy is the most important consideration in consumers' choice of vehicle and a 2007 Pew Charitable Trusts survey found that nine out of ten Americans favor tougher CAFE standards, including 91% of Democrats and 85% of Republicans. In 2007, the 55 mpg Toyota Prius outsold the top-selling SUV, the 17 mpg Ford Explorer. In late 2007, GM Vice Chairman Bob Lutz called hybrid gasoline-electric vehicles the "ideal solution",. In 2008, GM advertised fuel economy improvements and their upcoming Chevrolet Volt Plug-in Hybrid., and developed corporate branding for their fuel economy technologies, and though GM Chairman Rick Wagoner admitted he doesn't know which fuel efficiency technologies consumers really want he said "we are moving fast with technologies like E-85 (ethanol), all-electric, fuel cells and a wide range of hybrid offers."
In 1999, automakers asserted they couldn't lobby for the repeal of CAFE standards, because consumers would learn small cars are unsafe and not buy them, or would try to sue the manufacturers. CAFE standards signaled the end of the traditional long station wagon, but Chrysler's Lee Iacocca developed the idea of the minivan, which would fit into the separate truck category and allow automakers to comply with emissions standards. Eventually, this same idea led to the development of the SUV. New York, New Jersey, Pennsylvania, Connecticut and California disagreed with the NHTSA statement in the 2008-2011 Light Truck standard which claimed preemption of the state greenhouse gas regulations, on the basis that fuel economy and carbon dioxide emissions are one and the same. The EPA claims, contrary to NHTSA, that the use of alternative fuels allows greenhouse gas emissions to be controlled somewhat independently of fuel efficiency.

Calculations of MPG overestimated

The EPA laboratory measurements of MPG have consistently overestimated fuel economy. This results in a shortfall of about 15 percent in actual vs. measured CAFE goals. Starting with 2008-model vehicles, the EPA has adopted a new protocol for estimating the MPG figures presented to consumers. The new protocol includes driving cycles more closely representative of today's traffic and road conditions, as well as increased air conditioner usage. This change doesn't affect how the EPA calculates CAFE ratings; the new protocol changes only the mileage estimates provided for consumer information.
NHTSA spends one-third of one percent of its budget on CAFE.

Other arguments in favor

Other conservative groups support higher gas mileage on the basis of national security, or on the basis of of the Earth.

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