On May 3, Synapse Energy Economics released a study comissioned for by the Consumers Union, Consumer Benefits from CAFE. The report finds that with a base rate of $3.00 per gallon gasoline, car owners would save on average, $1,738 with the implementation of the 2025 Corporate Average Fuel Economy (CAFE) standards. The news is good for consumers – and if gasoline prices further rebound to $4.50 a gallon, consumers would save even more -- on average, $5,600 over the lifetime of the vehicle. Truck owners would also save up to $7,300 under a high gas price regime. Even with today’s low gas prices, a recent consumer poll from Consumer Federation of America found that fuel economy mattered to 80 percent of Americans.
The automotive industry is currently meeting efficiency standards for passenger cars and trucks at competitive price points, a good sign for the climate and consumers. But looking forward, the evidence that CAFE targets will be met becomes murky. Indeed, current vehicle sales trends raise serious concerns about reaching ambitious 2025 CAFE targets.
Reducing Transportation Emissions Critical for Reaching Paris Goals
On April 22, 175 countries signed the Paris Climate Agreement, wherein governments promise to lower their carbon emissions and aim to limit the warming of global temperatures to significantly below 2 degrees Celsius (3.6 degrees Fahrenheit). The agreement will take effect if it is ratified by at least 55 nations representing 55 percent of global emissions. A key aspect of meeting the Paris Climate Agreement goals is reducing transportation sector emissions.
In the United States, CAFE remains the major policy driver for reducing U.S. transportation emissions, which account for 27 percent of U.S. greenhouse gases and 70 percent of domestic oil consumption. In 2007, President Bush raised CAFE standards for the first time since 1990. Under the Obama administration, EPA combined miles per gallon (MPG) efficiency ratings and grams of carbon dioxide per mile under the CAFE standard.
In 2012, the Obama administration worked with the auto industry in setting at an ambitious 54.5 miles per gallon (mpg) CAFE standard for 2025. Once met, the 2025 CAFE standards will result in an estimated savings of $1.7 trillion in gasoline costs to U.S. consumers, as well as reduce GHG emissions by 6 billion tons over the lifetime of these vehicles. Yet, as gasoline prices have plummeted over the past several years, many question whether auto manufacturers will be able to meet their long-term CAFE goals.
Looking Forward to 54.5 MPG
Manufacturers have consistently met increasing CAFE standards in all vehicle classes since the program began in the 1970s. As the rules tightened out to 2025, conventional wisdom (and economic modeling) dictated that rising gasoline prices would drive consumers to choose more fuel efficient, lower emitting vehicles, such as plug-in electric and hybrid vehicles. Coupled with improvements in vehicle technology aimed at increasing fuel efficiency made meeting 2025 CAFE targets seem like a slam dunk.
Instead, the fracking revolution and subsequent global oil glut have turned this proposition on its head.
Even today, with gas prices now averaging less than $2 per gallon nationwide, automakers are still hitting CAFE targets -- for now. In 2015, 15 of the 16 major manufacturers met or exceeded 2015 fuel economy standards.
Despite this progress, cheap oil is throwing a monkey wrench into CAFE. In 2015, SUV purchases broke records, and 2016 is on track to be another banner year for the gas guzzling passenger truck and SUV market. Even with improvements to fuel economy in larger cars, only 40 percent of new light-duty trucks and SUVs are CAFE compliant, compared to 80 percent of regular cars.
Meanwhile, automakers remain tight-lipped on the prospects of meeting 2025 CAFE goals, with the Alliance of Automobile Manufacturers stating that they “have introduced energy-efficiency vehicles as fast as possible, so [they] are ahead in meeting government standards for now, but steeper targets lie ahead.”
The EPA, along with the National Highway Transit Safety Authority and the California Air Resources Board, will release its Draft Technical Assessment Report (TAR) for CAFE in June of this year. The TAR will give insight into whether the automotive industry will meet mid- and long-term CAFE goals, and set the stage for negotiations between regulators and industry over the future of the targets.
Decarbonizing Transportation Requires a Multi-Pronged Strategy
To achieve CAFE for the light duty fleet – there is no one-sized fits all solution. Considering each potential CAFE compliance pathway alone -- biofuels, improvements in fuel efficiency and electrification -- won’t realistically allow CAFE to reach 54.5 mpg in 2025. Instead, perhaps the industry should look towards a combination or hybrid of near-term, intermediate and long-term solutions to the issue.
Near-term and intermediate solutions include vehicle and fuels co-optimization; increasing the volume of clean and renewable octane; biofuels deployment; materials light-weighting; and further improvements in efficiency. According to analysis from Lux Research, the combination of biofuels, alternative fuels and fuel efficiency can cut global emissions by a staggering 29 percent by 2030.
Looking towards the long-term decarbonization of transportation will require different solutions. Electrification of the grid, a smart grid and battery storage to complement an electric passenger vehicle fleet are all necessary to address global transportation emissions. Long term, biofuels will still be used, but for different end-uses -- in heavy duty trucking, aviation and even as feedstocks for fuel cells -- not to mention biobased plastics, carbon fiber and other materials to reduce petrochemical inputs into automotive manufacturing.
For more information see:
Consumer Savings from 2025 Corporate Average Fuel Economy Standards (CAFE), Synapse Energy Economics