A primer on U.S. fuel economy standards

The recent spate of news articles with headlines like “Clash looms with automaker and efficiency standards” and “Detroit’s blue skies clouded by worries over fuel economy” are a clear sign that interest in the U.S. CAFE standards is rising—varying inversely with the trend in gas prices, it seems. But too many of these stories play fast and loose with the fuel economy data, the actual compliance status of automakers, and how fuel prices matter. It’s understandable: Auto executives have been cooperating with juicy quotes that make it easy to build stories around. But getting the facts right about compliance status of the industry would make for a better-informed public debate over as important a thing as the nation’s foremost policy to reduce oil demand. 
So here’s a primer on some crucial facts that have been conspicuously absent from too much of the recent reporting on passenger vehicle fuel economy standards in the U.S. 
Comparing consumer window-sticker fuel economy labels directly with the “54.5 mpg” 2025 standard falsely exaggerates the size of the challenge. This WSJ article, which compares UMTRI’s 25 mpg to the 54 mpg within the same infographic, misinforms by comparing a consumer window sticker mpg with a regulatory compliance mpg. Although these are both “mpg” ratings, they are not directly comparable. Fuel economy comparisons should either be in terms of consumer mpg or regulatory mpg, and muddling the two together falsely exaggerates the gap. The figure below shows how a more appropriate comparison would be between today’s regulatory 31 mpg and 46-48 mpg in 2025, after various credits are accounted for. Suggesting that the new fleet’s consumer 24-25 mpg has to reach the regulatory 54 mpg incorrectly doubles the size of the challenge. 
Fuel economy regulatory standards, and the associated consumer fuel economy

Fuel economy regulatory standards, and the associated consumer fuel economy

The auto industry is ahead of schedule in complying with the efficiency standards. For some reason, the recent news articles are discussing fuel economy standards based on auto executive sound bites and not regulatory compliance data. The US government’s transparency is second-to-none, and it serves a purpose: to let the public see the actual data on how policies are working. For articles to discuss how automakers are doing with respect to efficiency regulations without citing the government’s “Manufacturer Performance Report” and “Fuel Economy Trends” report is poor reporting. These are the definitive official sources for such information, and they show how companies are complying with the standards. Most of the companies beat their standards each year, whereas others rely on year-to-year (internal) and company-to-company trading to comply. Ford, General Motors, Honda, Hyundai, Kia, Mazda, Nissan, Subaru, and Toyota beat their 2013 standards and accumulated additional credits to carry forward into the following year. Chrysler provides a counterexample. Mr. Marchionne appears to have changed his mind and lost his can-do attitude about his company’s ability to do “incredible things” with “plain vanilla technology” If Chrysler opts to put less efficiency technology on their vehicles than their competitors, and instead buy credits from companies like Honda, Nissan, and Tesla to comply, that is their prerogative. Although it might seem short-sighted to slip further behind competitors in efficiency technology in such a way, the standards, to their benefit, are flexible enough to allow companies to take this path. 
Electric vehicles are not necessary for automakers to comply with the efficiency standards. Despite recent executive quotes to the contrary, complying with the standards is not going to require a dramatic shift to electric vehicles. EPA and NHTSA indicated that about 1% plug-in electric vehicles would be needed for compliance by 2021, and 2% in 2025. In fact, in the deliberations on the standards, it was clear that automakers would only deploy electric vehicles in significant numbers if there were artificial regulatory incentives (like 0 g/mi accounting and multipliers), among other other policies and subsidies. Electric vehicles are necessary for compliance with the Zero Emission Vehicle (ZEV) program that is adopted by California, Oregon, and several Northeast states. Any electric vehicle deployment above the ZEV requirements offers a compliance bonus, reducing the amount of the other efficiency technologies needed for compliance. And there is indeed strong progress in a number of states and cities around the country. But companies can certainly comply with US CAFE and CO2 standards without electric vehicles.
The standards have built-in mechanisms that are explicitly designed to adjust the fuel economy targets to shifting consumer preferences and fuel prices. The standards are indexed to each companies’ average vehicle size, as defined by its “footprint” in square feet (ft2). In addition, each light truck (including crossovers, SUVs, pickups) that companies sell faces a 24% less stringency fuel economy standard. If companies sell more larger vehicles and more light trucks they are held to more lax fuel economy standards. In 2013, for example, GM’s fleet footprint was 52 ft2, compared to Honda’s 46 ft2. GM achieved 28 mpg (22 mpg when adjusted for consumer) and Honda achieved 35 mpg (27 mpg for consumers) by applying a bunch of engine, transmission, aerodynamic technology. They both beat their 2013 standards and carry extra compliance credits into the next model year. If fuel prices drop further, company fleets’ vehicle sizes can inch up a bit, the fuel economy standards inches down, and companies can remain in compliance. And vice versa when fuel prices shift back up. The companies wanted this flexibility to help them cope with situations just like today’s low fuel prices, and they got exactly what they wanted. And, as a result, the standards are working well, just as designed. Any story discussing fuel prices and fuel economy compliance that doesn’t refer to the separate car/truck standards and footprint-indexing features is another example of poor reporting.
The two leading agencies, US Environmental Protection Agency and the Department of Transportation’s NHTSA, have certainly collected the data and done their homework. They consulted the automaker engineers and examined the company product plans. After all that, they made a flexible framework that the automakers agreed with, smiling and applauding — not just once but twice. The agencies continue to analyze the data and report on the results. 
It can be tough to dig out the information about what’s going on sometimes, no question. But in this case the technical and regulatory details, as well as the recent compliance and technology trends, are hiding in plain sight:
  • The Fuel Economy Trends report on real-world consumer fuel economy, including manufacturer-specific and efficiency technology trends
  • The Final Rule on model year 2017-2025 fuel economy and greenhouse gas emissions standards 
  • The Regulatory Impact Analysis on model year 2017-2025 fuel economy and greenhouse gas emissions standards, including details on technologies, technology deployment, and company-specific to comply with the standards.
  • The Manufacturer Performance Report for model year 2013
  • The Fuel Economy Label regulation, which includes additional explanation on adjusted “on road” or “label” fuel economy.
With all that data out there, we can do much better than orchestrated quotes from executives and exaggerated claims on the magnitude of the fuel economy challenge. Anybody who really wants to understand — or report on — what’s going on with U.S. passenger vehicle fuel economy, and the CAFE standards, has a wealth of data at their fingertips.