The Fuse

Top Findings from the Draft Technical Assessment Report on Light-Duty Fuel Economy Standards

by Leslie Hayward | July 20, 2016

The United States’ Environmental Protection Agency and the National Highway Traffic Safety Administration have just published the Draft Technical Assessment Report (TAR) of light-duty fuel economy rules for model years 2022-2025, defending the rules as currently written. “Today’s draft report shows that automakers are developing far more technologies to improve fuel economy and reduce greenhouse gas emissions, at similar or lower costs, than we thought possible just a few years ago,” Janet McCabe, acting assistant administrator for the EPA’s Office of Air and Radiation, said in a statement. “They are adopting these fuel-saving technologies into their fleets even faster than anticipated.” In addition to praising automakers for their innovation, the report found that the standards for 2025 can largely be met with current gasoline engine technology. The report is followed by a 60 day comment period before EPA and NHTSA publish their final recommendation in approximately six months.

“Our January 15, 2016 Year Eight Outlook anticipated that the EPA might propose tighter out-years standards to compensate for lower gasoline prices and greater SUV purchases than it projected in its 2012 final rule,” writes ClearView Energy Partners. “Our preliminary reading of the TAR suggests that the EPA could indeed be building a case for recommending more stringent out-years targets.”

The report, which clocks in at over 1,200 pages, is a detailed examination of the impacts of the rule, including economic costs and benefits, vehicle safety, the state of alternative fuel infrastructure, consumer acceptance, an evaluation of technology costs, and more. It will likely take a full year before the agencies make a final decision on whether or not to change any of its regulations, but the initial report shows the agencies are unlikely to become convinced that any changes are needed. In fact, some believe the Draft TAR could in fact be laying groundwork for a tightening of standards in the final rule. “Our January 15, 2016 Year Eight Outlook anticipated that the EPA might propose tighter out-years standards to compensate for lower gasoline prices and greater SUV purchases than it projected in its 2012 final rule,” writes ClearView Energy Partners. “Our preliminary reading of the TAR suggests that the EPA could indeed be building a case for recommending more stringent out-years targets.”

ClearView also says that in spite of surging SUV sales, the existing rules are already having an impact on gasoline demand. “We reiterate a key conclusion of our April 11, 2016 A Long Road report: even if SUV penetration levels increase and vehicle miles traveled (VMT) averages keep rising, cumulative fleet fuel economy gains appear poised to pare back U.S gasoline demand as soon as next year and probably not later than 2018.

In addition to defending the standards as currently written through 2025, and possibly laying groundwork for tightening them, here are some of the other important findings from the Draft TAR.

  • Fuel economy standards have a significant social benefit relative to their costs. Total industry-wide costs of meeting the MY2022-2025 GHG standards are estimated at $34 to $38 billion. Societal monetized benefits of the MY2022-2025 standards (exclusive of fuel savings to consumers) range from $40 to $41 billion. Consumer pre- tax fuel savings are estimated to be $89 billion over the lifetime of vehicles meeting the MY2022-2025 standards. Net benefits (inclusive of fuel savings) are estimated at $90 to $94 billion.
  • There have been significant changes in market dynamics since the 2012 Final Rule was issued. Compared to 10.9 million vehicles sold in 2009 amidst the Great Recession, vehicle sales last year surged to a record high of 17.5 million vehicles. Many new technologies have been quickly gaining market share, gasoline prices have dropped by more than a third, and truck share has been increasing.
  • The current surge in vehicle sales is having an impact on the pace though which new technologies are entering the marketplace, and certain technologies are making their way into the fleet faster than expected. Direct injection engines are becoming very popular and are outpacing estimated compliance pathways.

compliance pathways

  • When using compliance credits for alternative fuel vehicles, certain automakers are capturing massive gains from sales of electric and hybrid vehicles, with the top buyers and sellers articulated in the table below.

selling and purchasing credits

  • Complementing dramatic gains in fuel economy, cars on the road are also getting significantly more powerful. Part of this is because as automakers have innovated on engine technology, they have made tradeoffs between meeting fuel economy regulations and offering vehicles with more horsepower to attract buyers.

power

  • Average new vehicle fuel economy has increased in 8 of the last 10 years, and currently stands at a record high. Over that span, average new vehicle fuel economy has increased 5 mpg (a 26 percent increase). For MY2014, the average new vehicle fuel economy is 30.7 miles per gallon (35.6 mpg for cars and 25.5 mpg for trucks) as tested on EPA’s 2-cycle city and highway tests.

new vehicle fuel economy

  • Consumers’ reactions to inexpensive gasoline has stalled fuel economy gains over the last two years. In MY2014, average new vehicle fuel economy was unchanged from MY2013, largely due to an increasing percentage of truck sales. However, truck fuel economy in MY2014 increased by 0.8 mpg over the previous year, which was the second largest increase in the last 30 years. Truck fuel economy has increased for 10 years in a row and is now at a record 25.5 mpg. Overall, in MY2014 the improved fuel economy in trucks offset the market shift towards trucks to result in no change to the overall average fuel economy of new vehicles.
  • EPA also examined the response from professional auto reviewers on new technologies that have entered the marketplace, and used content analysis to determine how reviewers reacted to new efficiency technologies. Some received over 100 percent positive reviews, and in general the technologies were viewed favorably rather than neutral or negative.

efficiency ratings

In terms of what’s next for fuel economy standards, much of it will come down to the outcome of the Presidential election in November. It’s expected that, if elected, former Secretary of State Hillary Clinton would stay the course laid by the Obama Administration, and maintain the rules through 2025, creating further declines in gasoline demand through the next decade. A Donald Trump Administration’s goals on fuel economy are less clear.

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