>CAFE Standards Analysis

>Ok, I’m not an expert on the subject by any means, but I did promise that I would look into Corporate Average Fuel Economy standards for the readership.

First, go check out the wikipedia page on the subject. Go ahead, I’ll wait. Read it? Good.

My principles for fixing CAFE are:

First, reductions in fuel consumption are cheapest if the reductions can be done by the most efficient corporation, and in any category of production. Therefore, dividing the fleet into domestic and imported vehicles, and into passenger car and light truck categories is less efficient at improving mileage standards than simply lumping all vehicles made by a manufacturer together, and dividing the US fleet of vehicles into separate manufacturers is less efficient than lumping the entire US fleet together. Therefore, as proposed by others, I would like to see the CAFE standards change to be Nationwide Average Fuel Efficiency standards.

Under this system, manufacturers that make vehicles that are highly efficient should be able to sell credits to those that don’t quite meet the average. For example, let’s say for sake of example that Honda# makes great small cars that are fuel efficient (above the NAFE standard), but are not as profitable per unit as GM’s excellent large trucks, that are generally not fuel efficient (below the NAFE standard). Under the current rules, GM is required to either pay a penalty, reduce sales of large trucks, or develop and sell small cars, which are not desired in the market. Additionally, Honda is encouraged to develop and sell large trucks, which are not desired in the market.* Under my proposal, Honda would be able to sell excess NAFE “credits” to GM. GM can concentrate on making great large trucks (while still having an incentive to make them efficient and profitable), and Honda has an incentive to make great small cars (and has an incentive to make them even more efficient. Both companies concentrate on what they do best. It’s like the theory of comparative advantage, and the product is efficient vehicles.

Second, the fuel efficiency standards should assume a process of continuous improvement. Once we reached 27.5 MPG as the standard in 1985, we remained there for over two decades (in 2007 an increase in the standard to 35 MPG by 2020 was approved). We should have been increasing the standard by some amount every year for the past two decades. I’m just going to throw a number out there and say 2% per year. During the “active CAFE” period, we doubled efficiency in 10 years, or a 7% compounded improvement. Back then, we had the low hanging fruit (vehicle size reduction, locking automatic transmissions, front wheel drive, fuel injection), but there are certainly additional fruit that can be picked (selective displacement, CVT, reduced rolling resistance tires, advanced materials, efficient streamlining). If we had kept up 2% per year since 1985, our current 2008 efficiency requirement would be 43.5 MPG, and by 2020, it would be 55 mpg. If that growth rate were too high, the federal government could sell additional credits through a “safety valve” provision at a reasonable price**.

Third, the system needs to move from measuring and reporting “miles per gallon” to “gallons per 100 miles”, similar to Europe’s L/100km. As reported by Duke University, consumers are better able to make informed decisions about reducing fuel usage when presented with gallons per 100 mile figures compared to MPG. An example is comparing improving the efficiency of an SUV from 10 to 15 miles per gallon to a car that improves from 20 to 30 miles per gallon. Sure, both improve by 50% when you go by MPG, but compare gallons per 100 miles and you’ll see the difference. The SUV goes from consuming 10 gallons to 6.7, and the car goes from consuming 5 to 3.3. The SUV driver saves 3.3 gallons, and the car drive saves 1.7 gallons, only half as much, even though the improvement in MPG is the same as a percentage of baseline, and is twice as much in absolute (MPG) terms. If the real goal is to reduce gasoline consumption and assuming people want to travel a certain number of miles, reporting gallons per 100 miles is a better way to do it.

Fourth, the EPA fuel efficiency standards and the NHTSA standards need to be merged. The window sticker you see is based on the EPA standard, and CAFE compliance is judged by the NHTSA standards. The differences are not terribly important other than to say that the EPA standard reflects more real-world driving conditions and is generally lower than NHTSA, which is why the window stickers seem lower than the 27.5 MPG standard we’re supposed to be getting.

Fifth, the “boost” in reported fuel efficiency for vehicles that can burn 85% ethanol (such as GM’s “flex fuel” vehicles) should be scrapped, or at least limited by the ratio of E85 ethanol sold in the US to that of regular gasoline. These vehicles get a boost of about 1 MPG based on ability to burn E85, or 85% ethanol, 15% gasoline. There is no requirement that E85 actually be available or even sold, it’s the possibility of burning it that gives manufacturers a pass. Is it any wonder that GM’s largest vehicles are “flex fuel”, while none of the smaller cars are? None of the flex fuel vehicles get better than 24MPG highway, and most of them are no better than 20MPG highway. On the other hand, GM offers more than a dozen models above 30 MPG highway, and none of them are flex fuel capable, even though the only changes required are minor.

Last, all passenger non-commercial vehicles should fall under the same fuel efficiency standard. Up until recently, vehicles over 6000 lbs gross vehicle weight rating (GVWR) were exempt, leading to such oddities as the 2005 BMW X5, which had a GVWR of 6008 lbs. Since the GVWR is not a real weight (merely representing the theoretical “fully loaded” weight of the vehicle), it’s pretty obvious that BMW was trying to avoid complying with the standard. My reform would be that all vehicles would be included in the national average efficiency as long as they did not require a commercial driver’s license to operate. Commercial vehicles have a GVWR of more than 26,000 lbs, carry more than 10 passengers, are operated for hire, carry hazardous materials or tow a trailer weighing more than 10,000 lbs. This reform would envelop the International CXT, which gets 8-10 miles per gallon with a 70 gallon tank (costs almost $300 to fill!), and has a GVWR of 25,999 (suspicious, no?) lbs.

All of these reforms together would make CAFE (under my proposal, NAFE) much more flexible for manufacturers, while providing fewer avenues for cheating and increasing consumer understanding. They would also increase efficiency continuously over time. Some of them (#1, partially, #2, as noted above, #5 has been transferred from E85 to Biodiesel, and #6, partially) have been adopted into law, and some are still waiting.

*Again, we’re making assumptions here. I’m not trying to disparage Honda’s trucks, or GM’s small cars.
#Full disclosure: I own about $250 of Honda stock.
** I have no idea how to determine said “reasonable price”. It’s certainly no less arbitrary than the current $5.50 penalty per 0.1 MPG for not meeting the current CAFE.

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About perkinsms

I'm an engineer and father interested in transit, parking and economics.
This entry was posted in biodiesel, CAFE, efficiency, environment, gas, government. Bookmark the permalink.

3 Responses to >CAFE Standards Analysis

  1. Mark says:

    >”It’s certainly no less arbitrary than the current $5.50 penalty per 0.1 MPG for not meeting the current CAFE.”Why do they even have a rule like this, if the penalty is meaninglessly small? You could drive a car that got 1 mpg and the penalty would be nearly insignificant compared to the price of the car, so how could this penalty actually change behavior? (It’s rather like if a parking ticket cost $2 a day…there would be no reason whatsoever to feed the meter.)

  2. Michael says:

    >That’s per car, so if your corporation were 1 mpg off of the standard and you sold 100,000 units per year, that’s $5.5 million dollars in penalties, out of $200 million in profit (average profit per vehicle is between $1000 and 3000 for US and Japanese automakers respectively).It’s only a two percent penalty so it’s a little small. I guess it depends on how expensive it is to just upgrade a car to get 1 MPG better. $55?

  3. Mark says:

    >Surely it is somewhat engineering-expensive to make cars better, but I think that isn’t the problem. The more likely situation is that Joe Lunchpail dun be wantin’ his car to be reel big and gots lots of horsepowerz. So, the car companies could just tack an extra $1,500 onto the cost of the car, and, boom, they’re in the clear, which avoids the whole point of improving global efficiency and yet collects very little in taxes.

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