The Fuse

An Evolved Oil Market and New Vehicle Technologies Have Major Implications for Light Duty Fuel Economy

by Paul Ruiz | @pmruiz | September 27, 2016

In recent years, the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) have been engaged in a comprehensive review of their National Program governing light-duty vehicle fuel efficiency. At the time of the agencies’ rulemaking in 2012, improvements in fuel economy were estimated to result in an average fleet-wide level of 163 grams per mile of carbon dioxide tailpipe emissions in MY 2025, equivalent to 54.5 miles per gallon if achieved only through fuel economy improvements.

Low fuel prices also endanger efforts in the U.S. and elsewhere to move away from oil dependence. In fact, this is part of the Saudi strategy of allowing a glutted oil market to persist, which reduces investment in non-OPEC oil supplies, undermines competition to oil in transportation, and further erodes the market’s already limited capacity to respond flexibly as prices rise.

Since fuel economy standards were tightened, however, massive shifts have occurred in both the global oil markets and modern transportation systems. Oil prices collapsed, and inexpensive fuel has driven consumers towards inefficient vehicles at a time when policymakers need to consider the stringency of fuel economy standards during a legislated midterm review of the standards implemented in 2009. Low fuel prices also endanger efforts in the U.S. and elsewhere to move away from oil dependence. In fact, this is part of the Saudi strategy of allowing a glutted oil market to persist, which reduces investment in non-OPEC oil supplies, undermines competition to oil in transportation, and further erodes the market’s already limited capacity to respond flexibly as prices rise, requiring significantly higher prices to balance the market. This continued vulnerability to high oil prices in the future proves how important it is to maintain the country’s commitment to fuel economy standards which have reduced the oil intensity of the U.S. economy, and this reduced our dependence.

light truck sales

But innovations—such as ride-hailing services, electric vehicles, and the abrupt emergence of driverless car technology—create opportunities to modernize and possibly even strengthen standards by accounting for changes in how vehicles are designed and used. In comments submitted yesterday to the Environmental Protection Agency and National Highway Traffic Safety Administration, SAFE offered thoughts on the shortcomings and challenges to current fuel economy standards, proof of their continued importance, and some specific recommendations on how the agencies can leverage these new technologies and business models to promote further innovations in transportation. SAFE’s recommendations include:

Extend the Incentive Multiplier for Advanced Fuel Vehicles

The 2012 rule included an incentive multiplier for battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), compressed natural gas vehicles (CNGVs), and fuel cell vehicles (FCVs) sold between MY 2017 and MY 2021. This incentive was designed, in part, to facilitate economies of scale and ultimately encourage the broader adoption of these technologies beyond MY 2021 as the standards continue to become more stringent. The widespread use of advanced fuels represents the best long-term solution to U.S. oil dependence, yet they remain new to the marketplace and have thus far achieved only a very small share of total vehicle sales. They are also currently challenged by relatively lower oil prices.

Consider Credits and Support for Autonomous Vehicle Technologies

Autonomous vehicle (AV) technology has developed rapidly over the last several years and is on a trajectory to materially impact the U.S. transportation system. AVs could also spur a much more rapid shift to advanced fuels like electricity and encourage the scaling of new business models such as mobility-on-demand. These developments provide both a challenge and an opportunity for effective fuel efficiency regulations. Autonomous vehicles and ridesharing will change vehicle utilization dramatically, and have the potential, if done properly, to decouple system-wide petroleum consumption and GHG emissions from current calculations of fuel economy based narrowly on the powertrain and specific vehicle attributes. Including autonomous vehicles in fuel efficiency regulations could offer an enormous opportunity to shape a technology which will have a deep impact on energy consumption.

SAFE recommends that the agencies carefully study and evaluate how autonomous vehicle technologies will affect fuel economy. One way for the midterm review to do that  is to move towards the regulation of system impacts instead of on-vehicle technologies.

SAFE recommends that the agencies carefully study and evaluate how autonomous vehicle technologies will affect fuel economy. One way for the midterm review to do that  is to move towards the regulation of system impacts instead of on-vehicle technologies. Fuel economy standards are based on a limited number of testing procedures that focus on powertrain efficiency, provisioning an allowance for off-cycle credits. As autonomous vehicles become more prevalent, they may offer substantial opportunities to reduce energy consumption in the ground transportation system if the most efficient vehicles are used with carsharing and ridesharing services. The current approach to regulating fuel consumption, however, is focused on regulating the efficiency of the individual vehicles and not systems of vehicles. NHTSA and EPA should examine the opportunity to account for the greater efficiency and reduced oil consumption resulting from actual miles traveled, to help ensure that the most efficient or non-petroleum vehicles accumulate the most miles per year.

Another is to develop an interim approach to fuel economy standards and autonomous vehicle technology. The emergence of autonomous vehicle technology is generating enthusiasm for a radical transformation of the transportation sector, one that could spur a much more rapid shift to advanced fuels like electricity. To encourage the development of this technology, EPA and NHSTA should coordinate with industry to establish a meaningful incentive to encourage the testing of autonomous vehicle fleets. The incentive should be based on actual usage data from autonomous vehicles and tied to the projected fuel consumption avoided had the travel instead occurred in a vehicle with fleet average fuel economy. This interim program should be designed so that data and insights collected from this effort will inform a comprehensive approach towards accounting for autonomous vehicle technology and induced utilization changes in vehicle regulations.

Consider Energy Security and Societal Costs and Benefits

The agencies evaluate the energy security benefits of the National Program by estimating the economic costs of U.S. dependence on oil imports. Given the country’s continued dependence on crude oil imports and the negative macroeconomic effects this dependence exacts on the economy when oil prices spike, it remains an important consideration in the evaluation of the program’s energy security benefits. However, the country’s core energy security vulnerability is its reliance on oil as the near-exclusive fuel used to power transportation. This would remain true even if U.S. net oil imports were to fall to zero. Until the U.S. transportation sector is no longer beholden to oil, the country will be vulnerable to oil price volatility. Improving the fuel efficiency of the U.S. vehicle fleet is a valuable insurance policy against this volatility. In strengthening the calculation of societal costs and benefits, the agencies should extend the analysis of energy security by developing a method that more comprehensively captures the economic costs of oil dependence in the U.S. transportation sector.

oil price volatility

New Technologies and Business Models Can Transform the Marketplace

If it can be verified that the use of autonomous vehicles will improve overall fuel economy and reduce GHG emissions, the agencies should explore ways to maximize the benefits as soon as feasible.

Today, plug-in electric vehicles hold incredible promise and must be prioritized in vehicle regulations. However, functionally these vehicles simply replicate the job of a gasoline-powered vehicle moving travelers from point A to point B, dampening consumer adoption. Autonomous vehicles not only lend themselves to electrification, but they also offer consumers benefits beyond those of conventional vehicles. This is important because current fuel economy standards may ultimately not meet oil consumption or GHG goals due to consumer preferences. If it can be verified that the use of autonomous vehicles will improve overall fuel economy and reduce GHG emissions, the agencies should explore ways to maximize the benefits as soon as feasible.

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