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Thursday, August 18, 2011

Automobile and Light Truck Fuel Economy: The CAFE Standards

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

Interest in the fuel economy of automobiles and light 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 of motor vehicles in the United States. Proponents of higher fuel economy standards argue that they will create incentives for the development of new technologies that will help reduce dependence on imported oil and better enable us to use scarce resources and limit our greenhouse gas emissions— technologies that would not be developed in the absence of that “technology push.” Critics argue that fuel economy standards distort the market for new vehicles, compromising consumer choice, and that other policy mechanisms would be more effective at reducing petroleum consumption and emissions (e.g., higher fuel taxes).

On July 29, 2011, the Obama Administration announced plans to tighten passenger vehicle fuel economy and greenhouse gas standards for model years (MY) 2017-2025. Although the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) do not plan to issue proposed rules until September 2011, they expect that Corporate Average Fuel Economy (CAFE) standards combined for new passenger cars and light trucks will rise to 40.9 miles per gallon (mpg) in MY2021 and 49.6 mpg in MY2025, up from 34.1 mpg in MY2016. To the extent possible, new CAFE standards will be harmonized with federal and state greenhouse gas standards for automobiles. A key impetus for the agreement is California’s regulation of vehicle greenhouse gas (GHG) emissions under the Clean Air Act.

Although necessary cost-benefit analyses have not been completed, the Administration expects that consumers’ fuel savings from the new standards will more than offset the additional cost of equipment embodying the new technology for these vehicles, which could be thousands of dollars. The Administration expects 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.

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. 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. 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.

At the same time that EPA and NHTSA have proposed new standards for passenger vehicles, the agencies finalized a joint rulemaking on fuel economy and greenhouse gas emission standards for medium- and heavy-duty trucks and engines. On November 30, 2010, the agencies issued a proposed joint rulemaking for MY2014-2018. On August 9, 2011, the agencies announced final rules. EPA and NHTSA estimate that the rules will raise the average cost of a MY2018 combination tractor (i.e., the tractor portion of a tractor-trailer) by about $6,200, although the increased costs would be made up within a few years in fuel savings resulting from the rules.

Date of Report: August 11, 2011
Number of Pages: 19
Order Number: R40166
Price: $29.95

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