Vehicle Fuel Economy Standards
Big Energy Savings at a Modest Cost

— One of a Series of ACEEE Fact Sheets

Context

In the United States, transportation accounts for 28% of energy consumption, more than residential and commercial uses and second only to industrial uses. It also consumes 67% of petroleum used in the United States, over half of which is imported. Over three-quarters of transportation energy use is by highway vehicles—60% by cars and light trucks (including minivans and sport utility vehicles) and 16% by heavy trucks. Transportation energy consumption is increasing by 1.8% per year, faster than any other major category of energy use.

  Corporate Average Fuel Economy (CAFE) Standards

• The enactment of Corporate Average Fuel Economy (CAFE) standards in 1975 resulted in a near doubling of cars' average fuel economy, measured in miles per gallon (mpg), over the ensuing decade and an increase for light trucks of over 50%.
  
  
• Fuel economy standards for passenger vehicles save the United States over 55 billion gallons of fuel annually Without CAFE, total U.S. carbon dioxide emissions would be more than 10% higher than they are today.
  
  
• CAFE standards have been met largely through cost-effective measures such as engine efficiency improvements and weight reduction, with no decline in vehicles' interior volume or safety. The safety of new vehicles, as measured by highway fatalities per mile driven, improved substantially at the same time that fuel economy increased over the past 25 years.
  
  
• The 1985 average fuel economy standard of 27.5 mpg for cars has not been raised in the intervening 16 years, and the light truck standard increased only about 1 mpg in the same period. Congressional action has frozen CAFE standards since fiscal year 1996, and the fuel economy of the combined light duty fleet has now dropped to 24 mpg from its 1986–87 high of 25.9 mpg. Because SUVs are held to the less stringent light truck standard, their growing popularity has led to the decline in average fuel economy for the entire passenger fleet.

  Policies to Increase Vehicle Fuel Economy

Increasing the fuel economy of light duty vehicles is the single most effective energy-saving policy the federal government could adopt.

• Raising CAFE standards by 5% annually until 2012 and by 3% per year thereafter could save 1.5 million barrels of oil per day (MBD) by 2010, 4.7 MBD by 2020, and 67 billion barrels of oil over the next 40 years. This is 10–20 times greater than the potential oil supply from the Arctic National Wildlife Refuge.
  
  
• Imports of crude oil and finished petroleum products are projected to rise 66% from 1999 to 2020. Energy savings from raising CAFE standards as above would amount to cutting that 1999 to 2020 increase to 19%.
  
  
• Engineering analyses show that this level of fuel economy improvement over the next 10–15 years is feasible and could be achieved using "conventional" (non-hybrid) technologies through a combination of streamlining, reduced tire rolling resistance, engine improvements, optimized transmission, and effective use of the upcoming transition to higher voltage automotive electrical systems.
  
  
• Costs of fuel economy improvements of this magnitude would be modest. These fuel-efficient cars would cost less than the average 2010 vehicle—with no efficiency improvement—if current price trends continue.
  
  
• Honda and Toyota are already selling hybrid gasoline-electric vehicles that are 50–75% more fuel-efficient than typical new cars in the same size classes. Ford and GM have committed to a 25% increase in the fuel economy of their SUVs by 2005 and Ford has announced its intention to introduce a 30–40 mpg Escape SUN in 2003.

The transition to tighter fuel economy standards could be facilitated by complementary incentives, disincentives, and education measures, such as:

• Performance-based tax credits for advanced technology, fuel-efficient vehicles. These credits would help jumpstart the introduction and purchase of these advanced vehicles. Once the new technologies become widely available and produced on a significant scale, costs should decline and the tax credits could be phased out.
  
  
• Millions of inefficient light trucks (including SUVs) are used as passenger vehicles, yet are not subject to the "gas guzzler" tax (ranging from $1,000 to $7,700) that is imposed on inefficient cars. Applying the tax to new gas-guzzling passenger vehicles in all classes would "pull up"the bottom end of the vehicle fleet and generate tax revenue that could be used to offset the incentives offered to buyers of high-efficiency vehicles.
  
  
• The federal government could extend energy star^® labeling to high-efficiency and low-emitting vehicles. This would make it easier for consumers to identify "greener vehicles" and for manufacturers to promote them.

  Recommended Next Steps

• Increase CAFE standards by 60% to 44 mpg for cars and 33 mpg for light trucks by 2012, with 3% per year increases subsequently. Alternatively, adopt an equivalent fuel consumption cap, such as the cap contained in S.597, the Bingaman-Daschle bill.
  
  
• Implement market incentives and education programs to build demand for high-efficiency, cleaner vehicles, including tax incentives for highly efficient vehicles (as in S.760, the CLEAR ACT), an extended "gas guzzler tax"on very inefficient cars and light trucks, and a labeling program to identify greener vehicles.
  
  
• Given the importance of dramatically improving new vehicle economy in the coming decades, federal participation should be expanded in research and development of highly efficient vehicles—both light and heavy duty—and technologies such as fuel cells, hybrid-electric drivetrains, and lightweight materials. Such efforts should focus on developing both cleaner and more efficient vehicles by adopting aggressive emissions goals to complement fuel economy goals.