Flexibility Through CAFE Credits

Because economic volatility or unplanned events can make it more difficult for a manufacturer to meet the CAFE requirements in a given year, the CAFE provides needed flexibility so that manufacturers also can earn "credits" in years they exceed the standard. These credits can then be used to offset shortfalls in other years.

Specifically, when the average fuel economy of the vehicles produced in a particular model year exceeds the average fuel economy standard, the manufacturer earns credits. The number of credits a manufacturer earns is determined by multiplying the number of tenths of a mile per gallon by which the manufacturer exceeded the fuel economy standard in that model year, times the number of vehicles produced in that model year. These credits can be used to offset shortfalls in the three model years before or after the model year in which they were earned.

Penalties

Automakers who do not meet CAFE standards, after considering the 3-year carry-forward/carry-back, are considered to have committed a violation of the law. The penalty for non-compliance is $5.50 for each tenth of a mile per gallon shortfall during a model year, multiplied by the number of vehicles the automaker sold in that particular fleet. Thus, for a manufacturer selling 1 million vehicles, the penalty is $5.5 million for each one-tenth mpg

In calendar year 1999, manufacturers paid civil penalties totaling more than $16 million for failing to comply with the fuel economy standards for 1997 and 1998 model years. Neither General Motors, nor any other domestic manufacturer, has ever had to pay a non-compliance penalty.

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