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

Congressional research reportSep 11, 2012

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Automobile and Truck Fuel Economy (CAFE)

and Greenhouse Gas Standards

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September 11, 2012

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R42721

CRS Report for Congress

Prepared for Members and Committees of Congress

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

Summary

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.

Congressional Research Service

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

Contents

Introduction...................................................................................................................................... 1

Passenger Vehicle Standards for MY2017-MY2025 ....................................................................... 2

Different Statutes Govern Fuel Efficiency....................................................................................... 3

Federal Authorities .................................................................................................................... 3

State Regulations ....................................................................................................................... 5

Structure and Design of the CAFE/GHG System ............................................................................ 5

Size-Based Standards ................................................................................................................ 5

Benefits and Costs of the Rules ................................................................................................. 7

Compliance and Vehicle Cost Factors ....................................................................................... 8

Medium- and Heavy-Duty Truck Standards for MY2014-MY2018 ............................................. 10

Figures

Figure 1. Final Passenger Car CAFE Targets for MY2011 Through MY2016 ............................... 7

Figure 2. EPA’s Estimate of Cost to Automakers in MY2025 from Final Rule............................... 9

Figure 3. EPA’s Estimate of Per-Vehicle Cost Increase in MY2025 from the Final Rule ............. 10

Tables

Table 1. MY2016-MY2025 Combined Passenger Car and Light Truck

GHG and CAFE Standards ........................................................................................................... 3

Contacts

Author Contact Information........................................................................................................... 12

Congressional Research Service

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

Introduction

Interest in the fuel efficiency of automobiles and trucks has waxed and waned over more than

three decades as oil and gasoline prices have risen and fallen. However, in recent years, as oil

prices have spiked to historic levels, and concerns over greenhouse gas emissions and climate

change have grown, there has been a resurgence in interest in the fuel economy and emissions of

motor vehicles in the United States. Proponents of higher vehicle fuel efficiency standards argue

that they create incentives for the development of new technologies that will help reduce

dependence on imported oil and better enable the United States to use scarce resources and limit

greenhouse gas emissions—technologies that would not be developed in the absence of that

“technology push.” Critics argue that efficiency standards distort the market for new vehicles,

compromising consumer choice, and that other policy mechanisms (e.g., higher fuel taxes) would

be more effective at reducing petroleum consumption and emissions.

The most recent federal legislation on fuel efficiency was the Energy Independence and Security

Act of 2007 (EISA),1 which requires the National Highway Traffic Safety Administration

(NHTSA) to increase combined passenger car and light truck fuel economy standards to at least

35 miles per gallon (mpg) by 2020,2 up from roughly 26.6 mpg in 2007.3 Along with requiring

higher passenger vehicle standards, EISA dramatically changed the structure of the passenger

vehicle fuel economy program. It also directed DOT to study improvements in heavy-duty

vehicles and, if feasible, issue standards for those vehicles as well.4 In the same year, the Supreme

Court found that the Environmental Protection Agency (EPA) has the authority to regulate vehicle

greenhouse gas (GHG) emissions under the Clean Air Act.5 These two actions at the federal level

have significantly changed how motor vehicles are regulated at the federal level.

Fuel consumption and greenhouse gas (GHG) emissions from motor vehicles are closely linked.

The vast majority of vehicle GHG emissions result from the burning of petroleum products, so

reducing vehicle fuel consumption is the most direct means of reducing emissions. For these

reasons, the Obama Administration has issued joint rules on vehicle fuel economy and GHG

emissions for model year (MY) 2012-2016 passenger cars and light trucks,6 MY2014-MY2018

medium- and heavy-duty trucks,7 and MY2017-MY2025 passenger cars and light trucks.8 The

P.L. 110-140

Thirty-five miles per gallon is a lower bound: the Administration is required to set standards at the “maximum

feasible” fuel economy level for any model year.

Previously, passenger car Corporate Average Fuel Economy (CAFE) standards had been established in 1975 by the

Energy Policy and Conservation Act (EPCA, P.L. 94-163), and had not increased beyond that level after 1985. Before

the enactment of EISA, DOT had very little authority to modify the passenger car standards. Light truck standards had

been flat at 20.7 mpg through the mid-2000s until the Bush Administration used broader authority within EPCA to

raise the light trucks standards.

For more analysis, see CRS Report RL34294, Energy Independence and Security Act of 2007: A Summary of Major

Provisions, by (name redacted).

For more analysis, see CRS Report RS22665, The Supreme Court’s Climate Change Decision: Massachusetts v. EPA,

by (name redacted).

Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA), “LightDuty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule,” 75

Federal Register 25324-25728, May 7, 2010.

EPA and NHTSA, “Greenhouse Gas Emissions Standards and Fuel Efficiency Standards for Medium- and HeavyDuty Engines and Vehicles; Final Rule,” 76 Federal Register 57106-57513, September 15, 2011.

The CAFE standards only apply through MY2021 because of stipulations in the fuel economy law. NHTSA will need

(continued...)

Congressional Research Service

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

Administration intends the passenger vehicle standards to be harmonized with standards issued by

the state of California under the Clean Air Act.

Passenger Vehicle Standards for MY2017-MY2025

On August 28, 2012, the Obama Administration issued final rules to tighten passenger vehicle

fuel economy and greenhouse gas (GHG) standards for MY2017-2025.9 (See Table 1.) In a

similar process to the landmark 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.10 Many stakeholders were concerned about a

potential “patchwork” of different federal and state standards if EPA, NHTSA, and California

were to establish different standards at the intersection of fuel economy and GHG emissions. (See

discussion below on “Different Statutes Govern Fuel Efficiency.”) Two key parts of the

agreement are that California will treat any vehicle meeting the new federal GHG standards as

meeting California standards,11 and that the automakers agree to not challenge the new standards

in court.

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 new standards. Critics have challenged the Administration’s assumptions, countering

that the costs will be higher and could lead to a drop in new vehicle sales.

(...continued)

to issue additional regulations for MY2022 onward, while EPA has the authority to set GHG standards for MY2025

and beyond. EPA and NHTSA, 2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and

Corporate Average Fuel Economy Standards, Prepublication Version, August 28, 2012, http://www.epa.gov/oms/

climate/documents/2017-2025-ghg-cafe-standards-frm.pdf.

Ibid.

Environmental Protection Agency, EPA and NHTSA, in Coordination with California, Announce Plans to Propose

Greenhouse Gas and Fuel Economy Standards for Passenger Cars and Light Trucks, EPA-420-F-11-027, Washington,

DC, July 2011, http://www.epa.gov/otaq/climate/420f11027.pdf.

Technically, California’s standards are more stringent than the federal standards. However, applying the federal

standards to the California fleet would lead to fleet average levels in California in line with the state standards.

Congressional Research Service

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

Table 1. MY2016-MY2025 Combined Passenger Car and Light Truck

GHG and CAFE Standards

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

GHG Standard

(grams/mile)a

250

243

232

222

213

199

190

180

171

163

GHG-Equivalent

Fuel Economy

(miles per gallon

equivalent)a

35.5

36.6

38.3

40.0

41.7

44.7

46.8

49.4

52.0

54.5

Fuel Economy

(CAFE) Standard

(miles per gallon)a

34.1

35.4

36.5

37.7

38.9

41.0

43.0b

45.1b

47.4b

49.7b

Source: EPA and NHTSA, 2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate

Average Fuel Economy Standards, Prepublication Version, August 28, 2012.

Because of the complexity of the CAFE/GHG system, these numbers are based on projected sales of

vehicles in different size classes. The standards are size-based, and the vehicle fleet encompasses large,

medium, and small cars and light trucks. Thus if the sales mix is different from projections the achieved

CAFE and GHG levels would be different. For example, the CAFE numbers are based on NHTSA’s

projection using the MY2008 fleet as the baseline. A newer projection, based on the MY2010 fleet, leads to

somewhat lower numbers (roughly 0.3—0.6 mpg lower for MY2017-2020 and roughly 0.7-1.0 mpg lower

for MY2021 onward).

Projected. NHTSA only has authority to set CAFE standards in five-year increments. Thus, only rules

through MY2021 have been finalized. For MY2022 onward NHTSA must issue a new rule, which has not

been proposed as of September 2012.

Different Statutes Govern Fuel Efficiency

Federal Authorities

Federal authorities to regulate vehicle fuel economy and GHGs arise from very different statutes.

The Energy Policy and Conservation Act of 1975 (EPCA)12 requires NHTSA to set Corporate

Average Fuel Economy (CAFE) standards for passenger cars and light trucks. Amendments in

EISA direct NHTSA to tighten passenger vehicle CAFE standards and set efficiency standards for

medium- and heavy-duty trucks as well. EPCA does not provide statutory authority to regulate

GHG.

Vehicle GHG standards are administered by EPA through its authority under the Clean Air Act

and subsequent amendments13—authority affirmed by the previously mentioned Supreme Court

decision. These two statutes differ in several ways, including:

•

the authority they grant the agencies;

•

the lead-time required to implement regulations;

•

the time span of those regulations;

P.L. 94-163

42 U.S.C. 7521 et seq.

Congressional Research Service

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

•

standards for vehicle testing;

•

requirements for cost-benefit analysis; and

•

provisions for fines or penalties.

Thus, although the agencies have acted to integrate the standards, there are key differences

between the standards. Most notably, the “miles-per-gallon” targets under the rules that have

received the most attention in the new (MY2017 and later) rule are not, in fact, the CAFE

standards. The oft-cited “standard” of 54.5 mpg in MY2025 for the rule is a proxy for the actual

GHG standard of 163 grams per mile (g/mi) of carbon dioxide (CO2) equivalent. As the vast

majority of vehicle GHG emissions come from fuel combustion, the primary means for achieving

the standards will be through fuel economy increases. The 54.5 mpg “standard” assumes that all

of the reductions in GHG emissions come from fuel savings. In actuality, some of the most costeffective emissions reductions come through other means not reflected in the CAFE test, such as

improvements in vehicle air conditioning systems.14 If finalized, the expected CAFE standard for

MY2025 is lower, 49.7 mpg, although that number is still significantly higher than current

standards or what is required for MY2016.15

Another key difference between EPA and NHTSA’s authority is that NHTSA is limited by statute

and may only issue rules covering five model years or fewer. Thus, while the final GHG rule

extends through MY2025, the CAFE rule only extends through MY2021. For MY2022 and later,

NHTSA has published “conditional standards,” but will need to complete a separate rulemaking

for those years, a process that had not been started as of September 2012. Because of this

difference, and because of the long time frame for the GHG rule, the agencies plan a

“comprehensive mid-term evaluation” to assess the progress of the program, revisit cost-benefit

analyses, and propose new CAFE standards. The inclusion of the mid-term evaluation was a key

demand made by the automakers in the commitment letters they signed in support of the

proposal.16 As noted in the BMW Group’s letter:

BMW Group believes that the robust and comprehensive mid-term evaluation described by

EPA and NHTSA in the July 2011 Supplemental Notice of Intent is critical, given BMW

Group’s view of the uncertainty associated with the model years 2022-2025 standards.

Although BMW Group may not have full knowledge about the evolution and cost of

technologies necessary to meet these standards, particularly in 2022-2025, the mid-term

evaluation provides a basis for BMW Group’s support for adoption of standards for model

years that far into the future.17

Although CO2 is the primary GHG, other gases, such as methane (CH4) and fluorinated gases (e.g., air conditioner

refrigerants), also act as greenhouse gases.

Similarly under the MY2012-MY2016 rule, the oft-cited “standard” of 35.5 mpg is a translation of the GHG standard

(250 g/mi). The actual CAFE standard for MY2016 is approximately 34.1 mpg. This is supported by the agencies’ Joint

Notice in May of 2009: “If the automotive industry were to achieve this CO2 level all through fuel economy

improvements, this would equate to achieving a fleet average level of 35.5 mpg. However, it is expected that most

companies would also apply some air conditioning improvements to reduce GHG emissions. This would not translate

into fuel economy improvements, so on average we expect the fuel economy improvements to be somewhat below the

35.5 mpg value.”

The 13 automakers to sign commitment letters were BMW, Chrysler, Ford, General Motors, Honda, Hyundai, Jaguar

and Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota, and Volvo. Commitment letters were also signed by the

California Air Resources Board and the Association of Global Automakers, which represents several foreign auto

manufacturers. See http://www.epa.gov/otaq/climate/regulations.htm.

Letter from Norbert Reithofer, Chairman of the Board of Management, BMW Group, to The Honorable Ray Lahood,

(continued...)

Congressional Research Service

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

Nearly identical language is contained in the other automakers’ letters, including letters from the

Detroit 3.

State Regulations

EPCA explicitly preempts states from setting their own fuel economy standards. Under the Clean

Air Act, states are also generally preempted from setting their own vehicle emissions standards

with one key exception: California may establish its own vehicle emissions standards if EPA

determines that the standards are necessary and if they are at least as stringent as any federal

standards. For California to set new emissions standards, the state must first secure a waiver by

EPA from the Clean Air Act preemption (§209). Once a waiver is granted to California, other

states may adopt the California standards.18 This exception from state preemption was originally

enacted because California had particularly troublesome pollution problems and had state vehicle

emissions standards before there were federal standards.

Two key provisions of the agreement between the Administration, the automakers, and California

are that EPA will grant California the waiver for MY2017-MY2025,19 and that California will

accept vehicles complying with the federal greenhouse standards as meeting the California

standards.20

Structure and Design of the CAFE/GHG System

Size-Based Standards

In addition to requiring NHTSA to increase CAFE standards to at least 35 mpg by 2020, EISA

also made major changes to NHTSA’s authority to establish the structure and rules for the CAFE

program. Before EISA, passenger car standards were based on a “straight-line” average of 27.5

mpg. In general, for each model year, every automaker needed to achieve a sales-weighted

average of 27.5 mpg for all of its cars, regardless of vehicle attributes, or face penalties.21

Because smaller and lighter vehicles typically consume less fuel, the CAFE program thus

provided an incentive for automakers to downsize their vehicles. Larger vehicles tend to offer

greater passenger protection in accidents, however. Larger vehicles also tend to be heavier, so a

fuel economy program structure that does not factor vehicle size into the setting of CAFE

standards could promote the use of smaller, less safe vehicles. A corollary and further criticism of

(...continued)

Secretary of Transportation and The Honorable Lisa Jackson, Environmental Protection Agency Administrator, July

27, 2011, http://www.epa.gov/otaq/climate/letters/bmw-commitment-ltr.pdf.

In the past, about a dozen other states have adopted the California standards.

EPA had previously granted California a waiver for MY2012-MY2016.

For a more detailed discussion of the California standards, and the waiver petition, see CRS Report R40506, Cars,

Trucks, and Climate: EPA Regulation of Greenhouse Gases from Mobile Sources, by (name redacted) and (name red

acted), and CRS Report R41103,

Federal Agency Actions Following the Supreme Court’s Climate Change

Decision in Massachusetts v. EPA: A Chronology, by (name redacted).

“In general,” because some flexibilities apply to the system, including the ability for automakers to bank excess

credits from prior years, borrow expected credits from future years, and generate credits from the sale of alternative

fuel vehicles.

Congressional Research Service

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

the program was that it favored producers of smaller vehicles that would tend to have higher fuel

economy, generally non-U.S. manufacturers.

Whereas the inflexible passenger car CAFE system was set in statute, that same statute provided

NHTSA with much broader authority to set CAFE standards for other vehicle classes, such as

light trucks. Under an MY2011 rule for light trucks finalized by the Bush Administration, for the

first time, fuel economy targets varied with vehicle size, with smaller vehicles expected to

achieve higher fuel economy than larger vehicles. Under the new system, each vehicle is assigned

a fuel economy “target” based on its footprint, which is the product of a vehicle’s track width (the

horizontal distance between the tires) and its wheelbase (the distance from the front to the rear

axles). The sales-weighted average of the targets for a manufacturer’s fleet is the CAFE average

that the manufacturer must achieve in a given model year. In this way, no specific vehicle is

required to meet a specific fuel economy, and the average fuel economy required will vary from

manufacturer to manufacturer.

In amending the CAFE program through EISA, Congress required NHTSA to set new standards

“based on 1 or more vehicle attributes related to fuel economy … in the form of a mathematical

function.”22 For each model year, NHTSA establishes these functions separately for cars and light

trucks based on size (Figure 1). In harmonizing the CAFE and GHG standards, EPA adopted

NHTSA’s size-based curves. For each model year EPA has also established similar compliance

functions. The size-based standards make for a much more complicated regulatory system than

the previous one, but arguably provide less incentive to comply with the regulations by simply

making vehicles smaller.

49 U.S.C. 32902(b)(3)(A)

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

Figure 1. Final Passenger Car CAFE Targets for MY2011 Through MY2016

Miles Per Gallon

Footprint (square feet)

MY2011

MY2012

MY2013

MY2014

MY2015

MY2016

Source: CRS analysis of: National Highway Traffic Safety Administration, “Average Fuel Economy Standards

Passenger Cars and Light Trucks Model Year 2011; Final Rule,” 74 Federal Register 14407, March 30, 2009; and

Environmental Protection Agency and National Highway Traffic Safety Administration, “Light-Duty Vehicle

Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule,” April 1, 2010.

Benefits and Costs of the Rules

EPA estimates that the GHG rules will raise the average price of a new MY2025 vehicle by

roughly $1,800 compared to MY2016,23 but that annual fuel savings lead to a payback period of

just over three years:

Fuel savings for consumers are expected to more than offset the higher vehicle costs. The

typical driver will save a total of $5,700 to $7,400 (7 percent and 3 percent discount rate,

respectively) in fuel costs over the lifetime of a MY 2025 vehicle and, even after accounting

for the higher vehicle cost, consumers will save a net $3,400 to $5,000 (7 percent and 3

percent discount rate, respectively) over the vehicle’s lifetime. This estimate assumes a

gasoline price of $3.87 per gallon in 2025 with small increases most years over the vehicle’s

lifetime. Further, the payback period for a consumer purchasing a 2025 light-duty vehicle

with cash would be, on average, 3.4 years at a 7 percent discount rate or 3.2 years at a 3

percent discount rate, while consumers who buy with a 5-year loan would save more each

month on fuel than the increased amount they will spend on the higher monthly loan

payment, beginning in the first month of ownership. [EPA footnotes omitted]24

For the MY2016 rule, EPA and NHTSA estimated a cost increase of roughly $950 above MY2011.

EPA and NHTSA, 2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate

(continued...)

Congressional Research Service

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

Whether or not the Obama Administration has understated the costs, as some have asserted,25 EPA

and NHTSA argue that the benefits of the program will far outweigh the costs. For example, EPA

estimates the total costs of the program to automakers and vehicle buyers at roughly $148 billion

to $156 billion, while the benefits are roughly $510 billion to $639 billion over the life of the

vehicles covered by the rule, depending on various factors, especially the discount rate.26 The vast

majority (roughly 80%) of these benefits are expected to come through fuel savings, and thus

reduced expenditures on fuel.27

Compliance and Vehicle Cost Factors

The costs of compliance will be different for each manufacturer, depending on the vehicles they

produce. Under the size-based standards, an advantage of one automaker over another is not

based on the automaker’s overall fuel economy, but on the rated fuel economy relative to the size

of the vehicle. For example, an automaker with smaller vehicles may not be compliant with the

standards while an automaker with larger vehicles may be, even if the smaller vehicles actually

have higher fuel economy. Compliance, and thus costs, are based on how each vehicle performs

relative to the CAFE and GHG “curves” shown in Figure 1. In its regulatory impact analysis of

its MY2017-MY2025 rule, EPA estimated total sales and per-vehicle costs for each automaker in

MY2025. Although some results were expected—for example, larger automakers face higher

total costs simply due to the volume of vehicles they produce (Figure 2), some results were

surprising. For example, some automakers are projected to fare well under the car standards

relative to other automakers, but poorly under the light truck standards, or vice versa (Figure 3).28

(...continued)

Average Fuel Economy Standards, Prepublication Version, August 28, 2012, p. 40.

For example, the Center for Automotive Research has criticized EPA and NHTSA for underestimating the real-world

cost of new technology for its MY2017-MY2025 proposal. Center for Automotive Research, CAR’s Reply to the

ICCT’s “Comments on the Center for Automotive Research (CAR) June 2011 Report ‘The U.S. Automotive Market and

Industry in 2025,’” July 18, 2011.

Net benefits (benefits minus costs) are estimated at between $356 billion and $483 billion. EPA and NHTSA, 2017

and Later…, Prepublication Version, pp. 14-15.

Ibid. p. 83.

For example, Honda has higher costs for passenger cars than GM, but lower costs for light trucks. Similarly, Nissan

fares better than Hyundai on cars but worse on trucks.

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

Figure 2. EPA’s Estimate of Cost to Automakers in MY2025 from Final Rule

Relative to MY2016 Standards

Total Incremental Costs (Billion 2010$)

Chrysler

Ford

General

Motors

Honda

Cars

Trucks

Hyundai

Nissan

Toyota

Total

Source: CRS Analysis of EPA, Regulatory Impact Analysis: Final Rulemaking for 2017-2025 Light-Duty Vehicle

Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards, August 2012.

Note: These are estimated incremental costs above MY2016 multiplied by projected sales in MY2025. Total

costs would be the sum of similar estimates for each model year between MY2021 and MY2025.

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

Figure 3. EPA’s Estimate of Per-Vehicle Cost Increase in MY2025 from the Final Rule

2010 Dollars

$1,600

$1,200

Chrysler

Ford

Chrysler

Nissan

Ford

Hyundai

$800

Honda

Nissan

Toyota

Hyundai

Honda

Toyota

$400

Cars

Chrysler

Ford

Trucks

Honda

Hyundai

Nissan

Toyota

Source: EPA, Regulatory Impact Analysis: Final Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas Emission

Standards and Corporate Average Fuel Economy Standards, August 2012.

Medium- and Heavy-Duty Truck Standards for

MY2014-MY2018

In addition to requiring an increase in light-duty vehicle CAFE standards, EISA29 also required

NHTSA to study the potential for fuel efficiency gains, and, if feasible, implement fuel efficiency

standards for medium- and heavy-duty trucks and engines. After the completion of studies by the

National Academy of Sciences and NHTSA, EPA and NHTSA proposed a joint rulemaking for

MY2014-MY2018.30 On August 9, 2011, the agencies announced final rules. 31

§102(b)

Environmental Protection Agency and National Highway Traffic Safety Administration, “Greenhouse Gas Emissions

Standards and Fuel Efficiency Standards for Medium- and Heavy-Duty Engines and Vehicles: Proposed Rules,” 75

Federal Register 74152, November 30, 2010.

Congressional Research Service

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

Because of the inherent differences between commercial and passenger vehicles, the standards are

based on multiple attributes, including the weight class, physical size, and the presence of a

sleeping area in the driver’s cab. Further, because the same heavy-duty engine may be used in

various vehicles, and similar vehicles are often configured in different ways, the standards are

based on fuel consumption and greenhouse gas emissions per tons of payload miles,32 as opposed

to the miles-per-gallon standards for passenger vehicles.

EPA and NHTSA estimate that the rules will raise the average cost of new heavy-duty MY2018

combination tractors (i.e., the tractor portion of a tractor-trailer) by about $6,200. For heavy-duty

pickup trucks and vans, the agencies estimate the average increased MY2018 cost at around

$1,000, and around $400 for vocational vehicles (a wide range of vehicles including utility trucks,

refuse trucks, and dump trucks).33 Depending on the vehicle and the annual number of miles

traveled, the agencies estimate that the increased costs would be made up within a few years in

fuel savings resulting from the rules.34

The agencies estimate that the rules will save 530 million barrels of oil and 270 million metric

tons of greenhouse gases over the life of the vehicles sold in MY2014-MY2018. They estimate

total program costs of $8.1 billion (present value), offset by $50 billion in fuel savings and $7.3

billion in other net benefits (e.g., reduced emissions of greenhouse gases and other pollutants,

more miles driven from lower fuel costs, minus the increased congestion and fatalities from that

increase in miles), for a net benefit estimate of $49 billion over the life of the vehicles covered by

the rules.35 Some critics have questioned the Administration’s methodology in determining costs

and benefits. They argue that the net benefits could be considerably lower than EPA and NHTSA

have projected.36

(...continued)

Environmental Protection Agency and National Highway Traffic Safety Administration, “Greenhouse Gas Emissions

Standards and Fuel Efficiency Standards for Medium- and Heavy-Duty Engines and Vehicles; Final Rule,” 76 Federal

I.e., tons of payload times the number of miles traveled, also referred to as “ton-miles.” As noted by EPA and

NHTSA, the ton-mile is the “key measure of freight movement.” Ibid., p. 57115.

Ibid., p. 57127.

Ibid., p. 57347.

The agencies used a 3% discount rate to calculate present value, and made other assumptions (e.g., projected fuel

prices from the Energy Information Administration’s Annual Energy Outlook 2011). Changing any of these

assumptions will affect the projected costs and benefits. For example, using a 7% discount rate, the agencies estimate

that net benefits decrease to $33 billion (future benefits are reduced, while program costs, accrued in the early years,

are less sensitive to the discount rate). Ibid., Table I-5.

For example, see Winston Harrington and Alan Krupnick, Improving Fuel Economy in Heavy-Duty Vehicles,

Resources for the Future, Issue Brief 12-01, Washington, DC, March 2012, p. 11, http://www.rff.org/RFF/Documents/

RFF-IB-12-01.pdf.

Congressional Research Service

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

Author Contact Information

(name redacted)

Section Research Manager

[redacted]@crs.loc.gov, 7-....

(name redacted)

Analyst in Environmental Policy

[redacted]@crs.loc.gov, 7-....

(name redacted)

Specialist in Industrial Organization and Business

[redacted]@crs.loc.gov, 7-....

Congressional Research Service

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