Automobile and Light Truck Fuel Economy: The CAFE Standards

Order Code RL33413

Automobile and Light Truck Fuel Economy:

The CAFE Standards

Updated May 7, 2008

Brent D. Yacobucci

Specialist in Energy and Environmental Policy

Resources, Science, and Industry Division

Robert Bamberger

Specialist in Energy Policy

Resources, Science, and Industry Division

Automobile and Light Truck Fuel Economy:

The CAFE Standards

Summary

On April 22, 2008, the National Highway Traffic Safety Administration

(NHTSA) released a Notice of Proposed Rulemaking (NOPR) that would establish

fuel economy standards for model year (MY) 2011-MY2015 passenger cars and light

trucks. The rulemaking is in followup to the Energy Independence and Security Act

of 2007 (EISA, P.L. 110-140), enacted in mid-December 2007, which restructured

the automotive fuel economy program. It established a corporate average fuel

economy (CAFE) standard of 35 miles per gallon (mpg) by MY2020 for the

combined passenger automobile and light truck fleet. However, to meet the combined

standard, automakers will continue the practice of calculating the CAFE of their car

and light truck fleets separately. The proposed rule would establish passenger car fuel

economy at 31.2 mpg in MY2011, increasing to 35.7 mpg in MY2015. For trucks,

the comparable goals for compliance are 25.0 to 28.6 mpg. Lastly, the design of the

program will be “attribute” based; every model of new vehicle will have its own

target, based on the vehicle’s footprint.

Manufacturers’ passenger car fleets will be required to come within 92% of the

overall standard for a given model year. Above that floor, manufacturers can earn

credits for exceeding the standards in one vehicle class and apply credits to boost the

CAFE of a different vehicle class that is short of compliance. Additionally, credits

may be sold and bought among manufacturers. CAFE credits for the manufacture of

flexible-fueled vehicles (FFV) were retained by EISA, but will be phased out by

MY2020. Civil penalties assessed for non-compliance will be deposited to the

general fund of the U.S. Treasury to support future rulemaking and to provide grants

to U.S. manufacturers for research and development, and retooling in support of

increasing fuel efficiency. The law also requires the development of standards for

“work trucks” and commercial medium- and heavy-duty on-highway vehicles.

An important development bearing on CAFE was the denial in late December

2007 of a waiver to the state of California by the Environmental Protection Agency

that would have permitted California (and other interested states) to set vehicle

greenhouse gas standards under the Clean Air Act. Reducing fuel consumption could

be one of the major tools for reducing vehicle emissions. A waiver would allow these

states to require more stringent fuel economy of vehicles sold in those states than

required by the new standards established by EISA. Some have suggested that

language in the NOPR pre-empting states from regulating tailpipe emissions would

be challenged in court if included in any final rule.

A November 15, 2007, decision by the U.S. Court of Appeals for the Ninth

Circuit overturned a final rule issued by NHTSA for MY2008-MY2011 light trucks.

The Court ruled that NHTSA had not conducted a sufficiently rigorous analysis to

measure whether the standards would have a beneficial effect in improving

environmental quality through reduction of greenhouse gas emissions. The analysis

accompanying the NOPR for MY2011-MY2015 appears intended to address the

deficiencies identified by the Court in the earlier rulemaking.

Contents

Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Current CAFE Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Major Issues in the CAFE Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

How the Interim Rule for MY2011-MY2015 Would Work . . . . . . . . . . . . . . . . 7

Overview of the Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Reformed Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Challenge to the Rule and Court Decision . . . . . . . . . . . . . . . . . . . . . . . 9

CAFE and Reduction of Carbon Dioxide Emissions: Additional

History and Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Overview of Congressional Interest in CAFE (1991-2005) . . . . . . . . . . . . . . . . 12

In-Use Fuel Economy Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

List of Figures

Figure 1. Passenger Car and Light Truck Fuel Economy Averages for

Model Years 1978-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

List of Tables

Table 1. Fuel Economy Standards for Passenger Cars and Light Trucks:

Model Years 2000 Through 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Table 2. NHTSA-Estimated Societal Benefits and Costs From Proposed

CAFE Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Automobile and Light Truck Fuel Economy:

The CAFE Standards

Most Recent Developments

Corporate Average Fuel Economy (CAFE) standards are fleetwide fuel economy

averages that motor vehicle manufacturers must meet each model year (MY). On

April 22, 2008, the National Highway Traffic Safety Administration (NHTSA)

released a Notice of Proposed Rulemaking (NOPR) that would establish fuel

economy standards for MY2011-MY2015 passenger cars and light trucks. The

rulemaking is in followup to the Energy Independence and Security Act of 2007

(EISA, P.L. 110-140), enacted in mid-December 2007, which restructured the

automotive fuel economy program. It established a corporate average fuel economy

(CAFE) standard of 35 miles per gallon (mpg) by MY2020 for the combined

passenger automobile and light truck fleet. However, to meet the combined standard,

automakers will continue the practice of calculating the CAFE of their car and light

truck fleets separately. The proposed rule would establish passenger car fuel

economy at 31.2 mpg in MY2011, increasing to 35.7 mpg in MY2015. For trucks,

the comparable goals for compliance are 25.0 to 28.6 mpg. Lastly, the design of the

program will be “attribute” based; every model of new vehicle will have its own

target, based on the vehicle’s footprint. The target fuel economy for a vehicle of a

given footprint will increase over time, and will be derived from application of a

mathematical function that will relate vehicle attributes to fuel efficiency levels.

Manufacturers’ passenger car fleets will be required to come within 92% of the

overall standard for a given model year. Above that floor, manufacturers can earn

credits for exceeding the standards in one vehicle class and apply credits to boost the

CAFE of a different vehicle class that is short of compliance. Additionally, credits

may be sold and bought among manufacturers. CAFE credits for the manufacture of

flexible-fueled vehicles (FFV) were retained by EISA, but will be phased out by

MY2020. Civil penalties assessed for non-compliance will be deposited to the

general fund of the U.S. Treasury to support future rulemaking and to provide grants

to U.S. manufacturers for research and development, and retooling in support of

increasing fuel efficiency. The law also requires the development of standards for

“work trucks” and commercial medium- and heavy-duty on-highway vehicles.

An important development having a bearing on CAFE was the denial in late

December 2007 of a waiver to the state of California by the Environmental Protection

Agency that would have permitted California (and other interested states) to set

vehicle greenhouse gas standards under the Clean Air Act. Reducing fuel

consumption could be one of the major tools for reducing vehicle emissions. A

waiver would allow these states to require more stringent fuel economy of vehicles

sold in those states than required by the new standards established by EISA. Some

CRS-2

have suggested that language in the NOPR pre-empting states from regulating

tailpipe emissions would be challenged in court if included in any final rule.

A November 15, 2007, decision by the U.S. Court of Appeals for the Ninth

Circuit overturned a final rule issued by NHTSA for MY2008-MY2011 for light

trucks. The Court ruled that NHTSA had not conducted a sufficiently rigorous

analysis to measure whether the standards would have a beneficial effect in

improving environmental quality through reduction of greenhouse gas emissions.

The analysis accompanying the NOPR for MY2011-MY2015 appears intended to

address the deficiencies identified by the Court in the earlier rulemaking. Whether,

if challenged, the Court would find it sufficient, is uncertain. At this point, there

would be no reason for NHTSA to resubmit its light truck rule for MY2008MY2011.

Current CAFE Standards

The Arab oil embargo of 1973-1974 and the subsequent tripling in the price of

crude oil brought into sharp focus the fuel inefficiency of U.S. automobiles. New car

fleet fuel economy had declined from 14.8 mpg in MY1967 to 12.9 mpg in MY1974.

In the search for ways to reduce dependence on imported oil, automobiles were an

obvious target. The Energy Policy and Conservation Act (EPCA) established CAFE

standards for passenger cars for MY1978. The CAFE standards called for an eventual

doubling in new car fleet fuel economy. EPCA also granted NHTSA the authority

to establish CAFE standards for other classes of vehicles, including light-duty

trucks.1 NHTSA established fuel economy standards for light trucks, beginning in

MY1979. For passenger cars, the current standard is 27.5 mpg. For light trucks, the

standard was set at 22.2 mpg for MY2007. The CAFE standards to MY2011 are

summarized in Table 2.

As noted, on April 6, 2006, NHTSA issued additional rules to further increase

light truck fuel economy through MY2011, a rule that was remanded to NHTSA. The

MY2008-MY2011 light truck fuel economy standards shown in the table below are

included for informational purposes to show the path of the interim standards that

were proposed by NHTSA. Given the remanding of the rule, the standard of 22.2

mpg for light duty trucks prevails until raised by a final (and unchallenged) rule.

1

Light-duty trucks include most sport utility vehicles (SUVs), vans, and pickup trucks.

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Table 1. Fuel Economy Standards for Passenger Cars and

Light Trucks: Model Years 2000 Through 2011

(miles per gallon)

Model year

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Passenger

cars

b

27.5

b

27.5

b

27.5

b

27.5

b

27.5

b

27.5

b

27.5

b

27.5

b

27.5

b

27.5

b

27.5

b

27.5

Light

trucksa

20.7

20.7

20.7

20.7

20.7

21.0

21.6

22.2

c

22.2/ 22.5

22.2/c23.1

22.2/c23.5

22.2/d24.0

Source: Automotive Fuel Economy Program, Annual Update, Calendar Year 2001; U.S. Department

of Transportation. National Highway Traffic Safety Administration, Light Truck Average Fuel

Economy Standard, Model Year 2004, Final Rule; and U.S. Department of Transportation, National

Highway Traffic Safety Administration. Average Fuel Economy Standards for Light Trucks Model

Years 2008-2011, Final Rule (remanded to NHTSA in December 2007).

a. Standards for MY1979 light trucks were established for vehicles with a gross vehicle weight rating

(GVWR) of 6,000 pounds or less. Standards for MY1980 to MY2000 are for light trucks with

a GVWR of 8,500 pounds or less. Starting in MY2011, the light truck CAFE program will

include medium duty passenger vehicles (MDPVs), trucks with a GVWR between 8,500 and

10,000 pounds that primarily transport passengers (e.g., large SUVs, passenger vans).

b. Established by Congress in Title V of the act.

c. Unreformed CAFE standard. These are standards that were part of the MY2008-MY2011 NHTSA

rule that was remanded back to the agency to be redone.

d. Average that was estimated by NHTSA in the proposed rule, based on MY2011 reformed standard.

Compliance with the standards is measured by calculating a sales-weighted

mean of the fuel economies of a given manufacturer’s product line, with domestically

produced and imported cars measured separately. The penalty for non-compliance

is $5.50 for every 0.1 mpg below the standard, multiplied by the number of cars in

the manufacturer’s new car fleet for that year. Civil penalties collected from 1983

to 2003 totaled slightly more than $600 million. However, these penalties have been

paid mostly by small and speciality European manufacturers, not by the major U.S.

or Japanese automotive manufacturers.

The effectiveness of CAFE standards since inception has been controversial.

Since 1974, domestic new car fuel economy has roughly doubled; the fuel economy

of imports has increased by roughly one-third. Some argue that these improvements

would have happened as a consequence of rising oil prices during the 1970s and

1980s regardless of the existence of the CAFE standards. Some studies suggested

that the majority of the gains in passenger car fuel economy during the 1970s and

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1980s were technical achievements, rather than the consequence of consumers’

favoring smaller cars. Between 1976 and 1989, roughly 70% of the improvement in

fuel economy was the result of weight reduction, improvements in transmissions and

aerodynamics, wider use of front-wheel drive, and use of fuel-injection. The fact that

overall passenger car fleet fuel economy remained comparatively flat during a period

of declining real prices for gasoline also suggested that the CAFE program may have

contributed to placing some sort of floor under new-car fuel economy. Recent and

historic fleet fuel economy averages are shown in Figure 1.

Figure 1. Passenger Car and Light Truck Fuel Economy Averages

for Model Years 1978-2006

(miles per gallon)

35

30

25

20

15

1978

1982

1986

1990

1994

1998

2002

2006

Combined

Passenger Automobiles

Light Trucks

Source: U.S. Department of Transportation, National Highway Traffic Safety Administration,

Summary of Fuel Economy Performance, March 2007.

Major Issues in the CAFE Debate

Some of the arguments made on behalf of, or in opposition to, raising CAFE or

making significant changes in the program touched on long-standing themes that are

also complex. These issues include:

!

What is the effect of combining the passenger automobile and

light-duty truck fleet for the purpose of calculating

manufacturers’ average CAFE? During the congressional debate,

some contended that it should make no difference whether the

average is calculated across one entire fleet or weighted across two

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if an umbrella standard has to be met for the entire fleet. On the

other hand, had the classes been kept separate, there might be

differential effects of the standards on different vehicle classes.

Opponents of eliminating the distinction between the fleets referred

to that policy as “backsliding.” Under the CAFE program prior to

the enactment of EISA, a manufacturer was required to meet the

CAFE standard separately for its fleet of passenger cars produced in

the United States and abroad. The CAFE of each could not be

averaged across one another. A manufacturer could not earn CAFE

credits for one fleet that could be applied to bring its other fleet into

compliance, nor could manufacturers buy and sell credits from one

another. The two-fleet rule had been crafted originally to protect the

diversity of models manufactured in the United States. The United

Auto Workers (UAW) argued that eliminating the distinction

between foreign and domestic fleets could cost jobs in the industry

domestically. The final bill retained the distinction between the two

vehicle classes. The presumption is that this will place greater

weight for fuel economy improvement on passenger cars than on

light trucks.

!

Will higher CAFE standards bring about a loss in jobs? Some

argued that higher standards might compel manufacturers to make

fewer vehicles that consumers want; as a result, older, less efficient

vehicles might be retained longer. Others suggested that any impact

on jobs in the industry would be selective — that is, unionized jobs

might be more vulnerable if higher standards do affect demand for

vehicles.

!

What might be the effects of allowing credit trading among

manufacturers and/or between passenger car and light trucks

fleets? Under the previous structure of the CAFE program,

automakers could bank excess CAFE credits for use in future years,

but could not trade those credits with other automakers.

Manufacturers also could not trade credits between their passenger

car and light truck fleets — each fleet had to meet the standards

independently. Under the fuel economy program restructure by

EISA, credit trading is allowed. Supporters of this approach argued

that it may improve the economic efficiency of the system and lower

the cost of compliance. Opponents raised the possibility that

allowing credit trading could lead to a competitive advantage for

some manufacturers, and could affect auto industry employment.

!

Do higher CAFE standards have an effect on gasoline price?

There are many external and often short-term and cyclical variables

that can affect gasoline prices. If higher standards do reduce overall

oil demand from a baseline projection, world oil prices may be less

volatile when an incident or sequence of events raises uncertainty

about the adequacy and security of world supply. However, it is

impossible to make any reliable projections given such a large

universe of possible scenarios.

CRS-6

2

!

How do attribute-based standards work, and what are the

advantages and disadvantages of them? Any system for regulating

CAFE will have winners and losers, whether an attribute-based

system, or the previous straight-line average. Additionally, the

choice of which attribute or attributes on which to base CAFE will

also affect individual automakers differently. Under the new system,

NHTSA will set a fuel economy target calculated for each new car

as a mathematical function of individual vehicle attributes. The final

regulations developed by NHTSA may, for example, base standards

on vehicle size — or footprint. Under that scenario — and

visualized on a graph — each year’s standard would no longer be

represented by a single line, but appear instead as a curve that would

peg a desirable fuel economy target for vehicles based upon their

footprint. In successive model years, the curve would be replotted,

with the intention of reaching a designated CAFE fleetwide average

in some future model year. No individual vehicle would be required

to meet a specific fuel economy standard, but the average of the fleet

would need to meet or exceed the average of the individual vehicles’

size-based targets. (See Figure 2 in the detailed discussion below.)

!

Are there arguments to be made for and against designating

CAFE standards as an expression of both miles per gallon and

as grams per mile of CO2 emissions? One bill (H.R. 2927)

included such a provision. Technically, CO2 emission rates are not

measures of fuel economy but of greenhouse gas emissions.

However, there may be few ways to reduce emissions other than

increased fuel economy. Currently, states may establish emissions

standards under the Clean Air Act, but are preempted from setting

fuel economy standards by the Energy Policy and Conservation Act

(EPCA). Amending EPCA to establish CAFE standards both in

terms of miles per gallon and grams per mile of CO2 could have a

bearing on states’ authority to regulate CO2. On April 2, 2007, the

Supreme Court issued its ruling in a case (Commonwealth of

Massachusetts v. EPA) brought by 12 states and the District of

Columbia that challenged the Environmental Protection Agency’s

(EPA) decision not to regulate greenhouse gas emissions from

automobiles. The Supreme Court decision upheld the petition and

requires EPA to regulate CO2 emissions.2 A ruling of the U.S. Court

of Appeals for the Ninth Circuit overturning the final rule

promulgated in April 2006 setting light truck fuel economy

standards for MY2008-MY2011 was based, in part, on a

determination that NHTSA failed to thoroughly analyze the effect of

the final rule on CO2.

See additional discussion later in this report, “CAFE and Reduction of Carbon Dioxide

Emissions.”

CRS-7

How the Interim Rule for MY2011-MY2015

Would Work

Overview of the Rule

On April 22, 2008, NHTSA released a Notice of Proposed Rulemaking

(NOPR) that would establish fuel economy standards for model year MY2011MY2015 passenger cars and light trucks. Under the rule, cars and light trucks would

have a fuel economy “target” based on a specific vehicle’s “footprint” (the product

of wheelbase and track width), with higher targets for smaller vehicles and lower

targets for larger vehicles. For a given model year, the targets for a manufacturer’s

fleet would be averaged to calculate that manufacturer’s mandated fuel economy.

The agency’s estimate of costs, benefits and net benefits from the proposed rule

are shown in Table 3. The agency estimates that the total benefits of the proposed

passenger care rule would be roughly $31 billion over the lifetime of the 5 model

years. “Societal benefits,” the agency notes, includes “direct impacts from lower fuel

consumption as well as externalities such as reduction of air pollutants and

greenhouse gases.”3 After netting out the $15.8 billion cost of the rule, the net

societal benefit is estimated at $15.1 billion from the improvement in passenger car

fuel economy.

For the proposed light truck standard, the table shows $57.3 billion in gross

benefits, nearly $31 billion in costs, and a net societal benefit of $26.4 billion. For

both classes of vehicles, the greatest percentage of benefits — an estimated 84-85%

percent — is projected to accrue to consumers. The 15-16 percent balance of benefits

is attributed to environmental benefits, and a reduction in oil imports.

However, it’s important to note that the agency calculations assume a lower

gasoline price — of $2.26 to $2.51 per gallon — than was being observed when the

NOPR was released.4

3

U.S. Department of Transportation. National Highway Traffic Safety Administration.

Average Fuel Economy Standards Passenger Cars and Light Trucks Model Years

2011-2015. [Docket No. NHTSA-2008 -0089], p. 289.

4

Ibid., p. 290.

CRS-8

Table 2. NHTSA-Estimated Societal Benefits and Costs From

Proposed CAFE Rule

Passenger Cars

Model Year

Total

2011

2012

2013

2014

2015

2011-2015

Benefits

2,596

4,933

6,148

7,889

9,420

30,986

Costs

1,884

2,373

2,879

3,798

4,862

15,796

Net Benefits

712

2,560

3,269

4,091

4,558

15,190

Light Trucks

Model Year

Total

2011

2012

2013

2014

2015

2011-2015

Benefits

3,909

8,779

13,560

14,915

16,192

57,355

Costs

1,649

4,986

7,394

8,160

8,761

30,949

Net Benefits

2,260

3,793

6,166

6,755

7,431

26,406

Source: U.S. Department of Transportation. National Highway Traffic Safety Administration.

Average Fuel Economy Standards Passenger Cars and Light Trucks Model Years 2011-2015. [Docket

No. NHTSA-2008 -0089] p. 292.

To date, the CAFE standards have not applied to vehicles over 8,500 pounds

GVW. Vehicles between 8,500-10,000 pounds GVW, which are categorized as

medium-duty passenger vehicles (MDPV) would be included under the proposed

rule, beginning in MY2011. Before MY2004, these vehicles were considered heavyduty vehicles for both fuel economy and emissions purposes. For the purposes of

emissions standards, starting in MY2004, the Environmental Protection Agency

(EPA) first defined MDPVs and included them in the “Tier 2” emissions standards

for passenger cars and light trucks. The justification at the time was that these

vehicles are used primarily as passenger vehicles, and should be regulated as such.

NHTSA reached a similar conclusion, adding that fuel economy standards for

MDPVs were feasible, and that standards would save additional fuel —

approximately 250 million gallons over the operating life of MY2011 MDPVs.

Under the proposed rule, work trucks (such as long-bed pickups and cargo

vans), and trucks described as “multi-stage,” (built in stages by more than one

manufacturer) would be excepted from regulation.5 Work trucks may subsequently

5

Under the provisions of EPCA, NHTSA has had the authority to regulate the fuel economy

of vehicles up to a gross vehicle weight (GVW) of 10,000 pounds if, after study, it was

determined that it was feasible to set standards for these vehicles, and if there was evidence

that the vehicles were used for the same purposes as passenger automobiles, and that

including them under CAFE regulation would save a significant amount of fuel. In EISA,

Congress directed that vehicles up to 10,000 pounds be subject to CAFE standards,

eliminating the need for any administrative determination that there were grounds to include

(continued...)

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come under CAFE regulation, but EISA directed first that the National Academy of

Sciences conduct a study on the feasibility of including work trucks, with NHTSA

to conduct a subsequent evaluation of its own.

Reformed Standards

Prior to the passage of EISA, one of the key criticisms of the CAFE structure

was that increased CAFE standards promoted smaller, lighter vehicles because fuel

economy tends to decrease as vehicles get heavier. The concern was that fuel

economy standards would be met to a great degree by decreasing vehicle weight.

Because larger vehicles tend to offer greater passenger protection in accidents, and

tend to be heavier, 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 the program was that it favored

producers of smaller vehicles that would tend to be more fuel efficient. Some

proponents of higher CAFE standards responded by arguing that, through the use of

new technology, vehicle efficiency can be improved without affecting size or

performance.

Under the proposed rule, fuel economy targets vary with vehicle size, with

smaller vehicles required to achieve higher fuel economy than larger vehicles. Under

the system in the proposed rule, each vehicle would be 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 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, but the average fuel

economy required will vary from manufacturer to manufacturer.

The Challenge to the Rule and Court Decision

As noted earlier, a November 15, 2007, decision by the U.S. Court of Appeals

for the Ninth Circuit overturned a final rule issued by NHTSA in April 2006

establishing fuel economy standards for light trucks, MY2008-MY2011. The Court

ruled that NHTSA had not conducted a sufficiently rigorous analysis to measure

whether the standards would have a beneficial effect in improving environmental

quality through reduction of greenhouse gas emissions.

Eleven states, the District of Columbia, New York City, and four public interest

organizations had petitioned for review of the final rule governing light truck fuel

economy for MY2008-MY2011. In its decision, the Court ruled that NHTSA would

have to promulgate a new rule that, among other elements, assessed the costs and

benefits from different levels of standards in reducing carbon dioxide (CO2)

emissions. Among the petitioners’ arguments were that the cost-benefit analysis

performed by NHTSA assigned no benefit to reducing CO2 emissions, and that the

5

(...continued)

them.

CRS-10

rule did not establish a floor fuel economy that an individual manufacturer had to

achieve in a given model year.

At this point, there would be no reason for NHTSA to resubmit its rule for

MY2008-MY2011 because there is insufficient advance notice to the manufacturers,

whose product lines are planned well in advance of their introduction. The analysis

accompanying the NOPR for MY2011-MY2015 appears intended to address the

deficiencies identified by the Court in the earlier rulemaking. Whether, if challenged,

the Court would find it sufficient is uncertain.

However, there is some prospect of a challenge should NHTSA issue a final rule

that maintains, as is expressed in the NOPR, that any state regulation that affects fuel

economy, including any state regulation governing tailpipe emissions, is forbidden

by EPCA. The text of the NOPR observes (with emphasis added):

For those rulemaking actions undertaken at an agency’s discretion, agencies [are

instructed] to closely examine their statutory authority supporting any action that

would limit the policymaking discretion of the States and assess the necessity for

such action. This is not such a rulemaking action. NHTSA has no discretion not

to issue the CAFE standards proposed in this document. EPCA mandates that the

issuance of CAFE standards for passenger cars and light trucks for model years

2011-2015. Given that a State regulation for tailpipe emissions of CO2 is the

functional equivalent of a CAFE standard, there is no way that NHTSA can tailor

a fuel economy standard so as to avoid preemption. Further, EPCA itself

precludes a State from adopting or enforcing a law or regulation related to fuel

economy (49 U.S.C. 32919(a)).6

CAFE and Reduction of Carbon Dioxide Emissions:

Additional History and Discussion

Carbon dioxide emissions clearly figured into the challenge and ruling on the

NHTSA MY2008-MY2011 light truck fuel economy rulemaking. Mobile sources are

a key source of greenhouse gas (GHG) emissions in the United States.

Transportation accounts for roughly one-third of all U.S. carbon dioxide (CO2)

emissions. Passenger vehicles alone represent roughly 60% of transportation

emissions, or roughly 20% of total U.S. CO2 emissions. Because passenger vehicles

play such a significant role in U.S. GHG emissions, there is growing interest in

reducing their emissions as part of a strategy to address climate change concerns.

In general, there are three ways to reduce vehicle greenhouse gas emissions.

These choices are to: (1) reduce vehicle miles traveled (through strategies such as

carpooling, transit, or teleworking); (2) reduce vehicle per-mile fuel consumption

6

U.S. Department of Transportation. National Highway Traffic Safety Administration.

Average Fuel Economy Standards. Passenger Cars and Light Trucks Model Years

2011-2015, p. 378-379. [Docket No. NHTSA-2008 -0089]

CRS-11

(through improved fuel economy) and per-mile non-carbon emissions7 (through

improvements in vehicle systems); and (3) convert to lower-carbon transportation

fuels. As a consequence, there is likelihood that any program to reduce GHG

emissions will likely raise fuel economy. Conversely, any program to increase fuel

economy will lower GHG emissions.

There is some debate whether raising the CAFE standards would be an effective

or marginal way to reduce emissions of carbon dioxide. On one hand, improvements

in fuel economy should enable the same vehicle to burn less fuel to travel a given

distance. However, to the extent that technologies to improve fuel economy add cost

to new vehicles, it has been argued that consumers will tend to retain older, less

efficient cars longer. Further, improving fuel economy lowers the per-mile cost of

driving. To the extent that fuel savings are reduced by additional driving, the

reduction in greenhouse gas emissions will also be offset some. This is what is

referred to as the “rebound effect.”

Perhaps the most significant current issue regarding automotive fuel economy

has its origins in the 2002 decision by the state of California to require carbon

dioxide emissions standards for passenger cars and light trucks. Legislation passed

by the state legislature that year, A.B. 1498, requires the state to promulgate

regulations to achieve the maximum feasible and cost-effective reduction of

greenhouse gases from cars and trucks. The regulations, adopted by the California

Air Resources Board on September 24, 2004, require a reduction of greenhouse gas

emissions of 30% by 2016. The regulation covers passenger vehicles, but would not

affect heavier vehicles such as commercial trucks or buses.

Although states do not have authority to regulate fuel economy, under the Clean

Air Act California solely may be granted an exemption from restrictions on setting

vehicle pollutant emissions standards — subject to the state filing a petition with the

Environmental Protection Agency (EPA) and being granted a waiver by that agency.

Any state-established standards must be at least as stringent as the federal standards,

and as long as they are needed to meet “compelling and extraordinary conditions.”8

While only California can petition for a waiver, other states may adopt any California

standards that are put into place following the granting of the waiver.

Several auto manufacturers and dealers challenged the California auto

greenhouse gas standard in court. (Central Valley Chrysler-Jeep, Inc., vs.

Witherspoon, No. 1:04-CV-06663, E.D. Cal., filed December 7, 2004.) The plaintiffs

argued that California lacks the authority to establish standards that are almost certain

to bear on vehicle fuel economy requirements, and that greenhouse gases are not a

pollutant under the Clean Air Act. California officials maintain that they have the

authority under the Clean Air Act to regulate vehicle greenhouse gas emissions. The

state estimates that complying with the standard could cost $1,000 per vehicle by

2016, while opponents argue that costs could be as much as $3,000 per vehicle.

Depending upon the cost of compliance, the new standards could reduce demand for

7

8

E.g., fluorinated gas emissions from air conditioner systems.

For more information on the Clean Air Act waiver process, see CRS Report RL34099,

California’s Waiver Request to Control Greenhouse Gases Under the Clean Air Act.

CRS-12

new vehicles. The impact of the standards on manufacturers would likely vary

depending upon the mix of vehicles they offer. In early 2007, the Court indicated

that it would withhold a decision, pending resolution by the Supreme Court of a case

that might bear on the one before the Court.

On April 2, 2007, the Supreme Court issued its ruling on that related case

(Commonwealth of Massachusetts v. EPA). In that case, 12 states and the District of

Columbia challenged EPA’s decision not to regulate greenhouse gas emissions from

automobiles, arguing that EPA has the responsibility to set greenhouse gas standards

for passenger vehicles. Under that decision, EPA is required to establish greenhouse

gas standards for automobiles or explicitly justify why such standards are not

“justified.” The decision in that case will likely affect the outcome of the case against

California.9

On December 11, 2007, the United States District Court for the Eastern District

of California ruled that both EPA and California, through the waiver process, are

“equally empowered” to regulate GHG, and that preemption of state laws regulating

fuel economy did not preempt the proposed California standard to reduce GHG.

Then, on December 19, 2007, EPA Administrator Stephen Johnson sent a letter to

California Governor Arnold Schwarzenegger informing him of EPA’s plan to deny

California’s waiver request. Without this waiver, California’s program cannot move

forward.

EPA’s rationale appeared to consist of two arguments: first, that California has

not shown that its regulations are needed to meet compelling and extraordinary

conditions, as required by the Clean Air Act; and second, that the Administration and

Congress are addressing climate change through national standards. Specific

reference was made to the newly enacted CAFE standards in EISA as addressing

vehicle emissions. Officials in California were not satisfied by the agency

explanation for its decision. On January 2, 2008, California (along with 15 other

states) filed a suit against EPA in the U.S. Court of Appeals, 9th Circuit, challenging

EPA’s rejection of the petition.

Overview of Congressional Interest in CAFE

(1991-2005)

Significant efforts to raise CAFE began in the early 1990s and were highly

controversial. One proposal included in omnibus energy legislation was so

controversial that it contributed to an insufficient number of votes in the Senate in

1991 to bring the bill up for debate on the floor. A general criticisms of raising the

CAFE standards was that, owing to the significant lead times manufacturers need to

change model lines and because of the roughly ten years it generally takes for the

vehicle fleet to turn over, increasing CAFE is a slow and inefficient means of

achieving reductions in fuel consumption. Further, it was argued that the standards

9

For additional background, see CRS Report RL32764, Climate Change Litigation: A

Growing Phenomenon, by Robert Meltz.

CRS-13

risked interfering with consumer choice and jeopardizing the economic well-being

of the automotive industry. Opponents of raising CAFE have often cited a concern

that higher efficiency will likely be obtained by decreasing vehicle size and weight,

jeopardizing vehicle safety. Proponents of CAFE increases have argued that boosting

the standards could bring about the introduction of technological improvements that

would not compromise features that consumers value, but which would otherwise not

be added because of the increase in vehicle cost stemming from these improvements.

Language in the FY1996-FY2000 Department of Transportation (DOT)

Appropriations prohibited expenditures for any rulemaking that would make any

adjustment to the CAFE standards. In conference on the FY2001 appropriations, the

Senate insisted that the language be dropped, opening the way for NHTSA to initiate

rulemakings once again. The conferees also agreed to authorize a study of CAFE by

the National Academy of Sciences (NAS) in conjunction with DOT. That study,

Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,

released on July 30, 2001, concluded that it was possible to achieve more than a 40%

improvement in light truck and SUV fuel economy over a 10- to 15-year period at

costs that would be recoverable over the lifetime of vehicle ownership. A study

released in December 2004 by the National Commission on Energy Policy, Ending

the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges,

established by foundation money, recommended that Congress instruct NHTSA to

raise CAFE standards over a five-year period beginning not later than 2010. The

commission recommended that manufacturers be able to trade fuel economy credits

earned by exceeding the standards.

A draft report from the National Petroleum Council, “Facing the Hard Truths

About Energy: A Comprehensive Review to 2030 of Global Oil and Gas,” released

in late July 2007 argued that vehicle fuel efficiency could be doubled by 2030

“through the use of existing and anticipated technologies,” and “assuming vehicle

performance and other attributes remains the same as today.” The draft report noted

that technologies to improve fuel efficiency had been used to compensate for the

addition of horsepower and other “amenities” to current vehicles. The Council

estimated that doubling fuel economy could achieve a savings of 3-5 million barrels

a day by 2030.10

The Energy Policy Act of 2005 (P.L. 109-58) authorized $3.5 million annually

during FY2006-FY2010 for NHTSA to carry out fuel economy rulemakings. It also

required a study (submitted to Congress in August 2006) to explore the feasibility

and effects of a significant reduction in fuel consumption by 2014, and required that

the estimated in-use fuel economy posted to the window of new vehicles more

closely approximate owners’ experience.

In August 2006, NHTSA issued to Congress the report “Study of Feasibility and

Effects of Reducing Use of Fuel for Automobiles.” The report concluded that

NHTSA’s light truck rulemaking will lead to significant reductions in fuel

10

National Petroleum Council. Facing the Hard Truths about Energy, p. 86-87. The text of

the report is currently available at [http://www.npc.org].

CRS-14

consumption, and that granting NHTSA the authority to establish similar rules for

passenger cars would lead to even greater reductions.

In-Use Fuel Economy Estimates

The fuel economy of individual vehicles is calculated by running vehicles

through a test on a dynamometer intended to simulate a driving cycle that assumes

11 miles driven in an urban setting and 10 miles on open highway. To bring this

calculation more into line with in-use fuel economy experienced by drivers, the EPA

makes a downward adjustment of 10% for the city portion of the cycle and 22% for

the highway portion. However, many argued in the past that this adjustment was no

longer sufficient, and that the gap between estimated fuel economy and actual in-use

fuel economy had widened significantly.

EPACT required a revision of the adjustment factor applied against tested

vehicle fuel economy to estimate consumer in-use fuel economy. On December 11,

2006, EPA finalized a rule to incorporate the effect of factors such as higher speed

limits, faster acceleration, differences in the ratio between city and highway driving,

and use of air conditioning on in-use fuel economy. The in-use fuel economy

stickers posted to the windows of new cars will reflect the results of these tests

beginning in MY2008.11 The change affects only the estimation of in-use fuel

economy. It does not affect the CAFE calculation for purposes of determining

manufacturers’ compliance with the CAFE standard.

For Additional Reading

National Petroleum Council. Facing the Hard Truths about Energy (2007).

National Research Council. Committee on the Effectiveness and Impact of Corporate

Average Fuel Economy Standards. Effectiveness and Impact of Corporate

Average Fuel Economy (CAFE) Standards. Washington, D.C., National

Academy Press, 2001. 166 p.

Greene, D.L., P.D. Patterson, M. Sing and J. Li. (2004). “Feebates, Rebates and

Gas-Guzzler Taxes: A Study of Incentives for Increased Fuel Economy,”

Energy Policy, vol. 33, no. 6, pp. 721-827, June 2004.

U.S. Congressional Budget Office. Reducing Gasoline Consumption: Three Policy

Options. November 2002. 36 p.

U.S. Congressional Budget Office. The Economic Costs of Fuel Economy Standards

Versus A Gasoline Tax. December 2003. 37 p.

11

For more information, see U.S. Environmental Protection Agency (EPA), Regulatory Fact

Sheet: EPA Issues New Test Methods for Fuel Economy Window Stickers, December 2006.

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U.S. Environmental Protection Agency. Fuel Economy Labeling of Motor Vehicles:

Revisions To Improve Calculation of Fuel Economy Estimates. 71 Federal

Register 77871. December 27, 2006.

U.S. Department of Transportation. National Highway Traffic Safety Administration.

Average Fuel Economy Standards. Passenger Cars and Light Trucks Model

Years 2011-2015, p. 378-379. [Docket No. NHTSA-2008-0089]

U.S. Department of Transportation.

National Highway Traffic Safety

Administration. Light Truck Average Fuel Economy Standards, Model Years

2005-2007. 68 FR 16867; April 7, 2003.

U.S. Department of Transportation.

National Highway Traffic Safety

Administration. Automotive Fuel Economy Program. Annual Update,

Calendar Year 2004. [http://www.nhtsa.dot.gov/staticfiles/DOT/

NHTSA/Vehicle%20Safety/CAFE/2004_Fuel_Economy_Program.pdf]

U.S. Federal Register. Department of Transportation. National Highway Traffic

Safety Administration. Average Fuel Economy Standards for Light Trucks

Model Years 2008-2011. Final Rule. Vol. 71, No. 66. Thursday, April 6, 2006,

pp. 17566-17679. [http://www.nhtsa.dot.gov/staticfiles/DOT/NHTSA/

Rulemaking/Rules/Associated%20Files/2006FinalRule.pdf]

United States Court of Appeals, Ninth Circuit. Center for Biological Diversity vs.

National Highway Traffic Safety Administration. Argued and Submitted August

14. 2007. Filed November 15, 2007. See [http://www.altlaw.org/v1/cases/

218574.pdf].