The Fuse

Separating Fact from Fiction on Fuel Economy Standards

by Leslie Hayward | April 25, 2016

Despite their importance towards reducing oil dependence, fuel economy standards are widely misunderstood, even among energy and transportation experts. As oil prices languish and gas prices remain at sustained lows, American consumers have not only revealed a preference for larger and less fuel efficient vehicles—they are also driving more than ever.

light trucks

The period of low fuel prices coincides with the upcoming mid-term review of fuel economy standards from the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA). The former agency is responsible for regulating greenhouse gas emissions from the country’s vehicle fleet, while the latter administers regulations on Corporate Average Fuel Economy, or CAFE standards.

Currently, EPA and NHTSA are working on a Technical Assessment Report of the 2025 standards, which will be completed in June of this year. This review will underpin an assessment by both agencies as they finalize regulations for the period through 2025. In the case of EPA, which has authority to regulate under the Clean Air Act, the agency needs to determine if the current standard is “appropriate,” but it also has the authority to ratchet the standards up or down. In the case of NHTSA, the agency has the authority to regulate for only five years at a time, and has to effectively write a new rule. Its proposed rule will be released in spring 2017, the same time that EPA will release its decision over if the current rule is appropriate, with the outcome from both agencies determined by the next president.

The rules are complicated for a number of reasons, not least of which is the fact that 54.5 mpg is a largely symbolic number, rather than a realistic fuel economy goal.

The rules are complicated for a number of reasons, not least of which is the fact that 54.5 mpg is a largely symbolic number, rather than a realistic fuel economy goal. Fuel economy standards have a significant impact on the oil intensity of the economy and fuel consumption overall—and as U.S. gasoline demand surges and is likely to reach record highs in 2016, the need for efficient cars and trucks is clear for many. But the 2025 standards are facing headwinds from automakers and trade associations that argue the current rules are too stringent. Here are some important considerations heading into the release of the technical assessment in June and the decision next year.

  • 54.5 miles per gallon is a largely symbolic number

If it seems impossible that the average new car or truck sold would reach 54.5 miles per gallon within the decade, from a current average of just over 25 mpg, that’s because 54.5 mpg is not the actual expected mpg, even when the standard is reached. The 54.5 mpg level was calculated to represent a regulatory target, but actual on-road fuel economy for new vehicles will be closer to 37 mpg.

Even though 54.5 mpg isn’t designed to represent the window sticker efficiency for new cars and trucks, the dramatic difference between 54.5 and what’s currently publicized on new cars can contribute to the perception that the 2025 standard is unrealistic.

The 54.5 mpg number is calculated based on estimated tailpipe emissions based on a hypothetical fleet mix (balance of cars and trucks), but it also includes various credits for certain technology improvements. These credits can be applied for various modernizations, such as stop-start ignition systems, aerodynamics, solar panels on hybrids, and other additions, and cumulatively can go a long way towards helping automakers achieve the 2025 standards, even if they don’t impact on-road fuel economy. One of the most commonly cited offsets is improvements in air conditioning systems: EPA encourages automakers to switch to air conditioning systems that reduce leakage or use of hydrofluorocarbons (HFC), which are potent greenhouse gasses.

However, even though 54.5 mpg isn’t designed to represent the window sticker efficiency for new cars and trucks, the dramatic difference between 54.5 mpg and what’s currently publicized on new cars can contribute to the perception that the 2025 standard is unrealistic. “It can have a psychological impact,” says Jonna Hamilton of the Union of Concerned Scientists.

  • Higher truck and SUV sales make it easier for automakers to reach the 2025 goals

The way that CAFE standards are currently structured doesn’t take into account if the vehicles sold are cars, trucks, or SUVs—and consumers’ recent pivot towards larger vehicles does not hurt the ability of manufacturers to meet the 2025 targets, because the requirements for efficiency gains vary depending on vehicle class. In fact, according to Dave Cooke of the Union of Concerned Scientists, because the efficiency improvements required for cars are more stringent than the gains required for SUVs and light trucks, higher sales of these large vehicles actually make it easier for automakers to achieve the 2025 goals. “The technology that needs to be applied to achieve the standards is less, on average, than for cars,” says Cooke.

The benefit of this approach is that the rule is flexible towards consumer preferences: Whether Americans are buying more cars or trucks doesn’t impact if automakers can achieve their targets, but both the cars and trucks available for sale are becoming steadily more efficient. However, the disadvantage is that the balance of new vehicle sales between cars and trucks, or the fleet mix, does have important implications for total fuel demand, and the recent sales trends are driving up long-term fuel consumption.

  • Automakers are on track to meet the 2025 standard—even without dramatic sales of advanced-technology vehicles

Source: Union of Concerned Scientists

While there has been some news coverage of strife between automakers and regulators over the 2025 standards, most automakers are in fact on track to meet the 2025 standard, generally through application of conventional technology. According to EPA, as of last year, manufacturers are, on average, about 1 mpg ahead of where the regulations require them to be. This puts them about 1 year ahead of schedule, since fuel economy gains have generally improved at a rate of 1 mpg annually.

Advanced-technology vehicles, such as electric, plug-in electric, and hybrid cars can help automakers reach the 2025 standard, because they are treated very favorably by the regulations. For EPA’s rating, a full battery electric vehicle (such as the Tesla Model S or Nissan LEAF) is not only considered “perfect”—as in, it contributes zero grams of greenhouse gasses to the atmosphere for every mile driven—but every car sold is also treated to a multiplier, and counts double towards the automaker’s portfolio. For NHTSA’s rating, battery electric vehicles don’t have a multiplier, but they do receive an mpg rating in the hundreds of miles per gallon. This treatment for electric vehicles is designed to encourage automakers to develop and sell higher volumes of alternative fuel cars.

However, EPA/NHTSA’s assumptions about the number of these vehicles that need to be sold to meet the standard is relatively low—only some 3-5 percent of sales in 2025 need to be advanced technology vehicles, which is already the case.

According to EPA, as of last year, manufacturers are on average about 1 mpg ahead of where the regulations require them to be.

Additionally, automakers have made tremendous gains by applying a range of improvements to conventional gasoline engines, many of which were not anticipated when the regulation was put into effect. These include improvements like lightweighting (reducing the weight of the vehicle), direct injection (injecting fuel into the cylinder at high pressure to improve control of the combustion process), turbocharging (increasing the power of smaller engines), and improvements in automatic transmissions that keep the engine operating within its “sweet spot” for efficiency.

  • Automakers are improving both efficiency and performance at the same time

There are often tradeoffs between vehicle performance and vehicle efficiency, and automakers are often required to make a choice that balances the two. Many of the innovations being tapped to meet the 2025 goals is enabling them to accomplish both, to the benefit of consumers.

Ford recently developed an aluminum F-150 to shed an estimated 500 pounds of weight from the truck’s chassis. But Ford also significantly increased the power of the truck—according to Car and Driver, the aluminum F-150’s towing and payload capabilities exceed those of the Chevrolet Silverado and Ram 1500 by a significant margin.

One example is the Ford F-Series—the top selling line of vehicles in the country since the 1980s. Ford recently developed an aluminum F-150 to shed an estimated 500 pounds of weight from the truck’s chassis. But Ford also significantly increased the power of the truck—according to Car and Driver, the aluminum F-150’s towing and payload capabilities exceed those of the Chevrolet Silverado and Ram 1500 by a significant margin. “They nullified some of what they could have gotten in fuel economy,” says Cooke. “For the Ford F-150, the most efficient version currently meets fuel economy standards of around 2021-2022—so they don’t have to make significant improvements to meet 2025 standards. That’s a tradeoff they are willing to make, because they are also competing with other manufacturers for who can sell the most powerful trucks.”

Aside from lightweighting, developments in engine technology have also enabled increase in both performance and efficiency. It’s up to individual automakers to determine the balance to offer customers.