Corporate Average Fuel Economy Standards

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Corporate Average Fuel Economy standards

In 1975, as part of the response to the Arab oil embargo of 1973–1974, the U.S. Congress and President Richard Nixon passed the Energy Policy and Conservation Act. One of a number of provisions in this legislation intended to decrease fuel consumption was the establishment of fuel economy standards for passenger cars and light trucks sold in the United States. These Corporate Average Fuel Economy (CAFE) standards require that each manufacturer's entire production of cars or trucks sold in the United States meet a minimum average fuel economy level. Domestic and import cars and trucks are segregated into separate fleets, and each must meet the standards individually. Any manufacturer whose fleet(s) fails to meet the standard is subject to a fine, based on a CAFE shortfall times the total number of vehicles in the particular fleet. Manufacturers are allowed to generate CAFE credits for overachievement in a single year, which may be carried forward or backward up to three years to cover other shortfalls in mileage. This helps to smooth the effects of model introduction cycles or market shifts.

CAFE standards took effect in 1978 for passenger cars and 1979 for light trucks. Truck standards originally covered vehicles under 6,000 lb (2,724 kg) gross vehicle weight (GVW), but in 1980, they were expanded to trucks up to 8,500 lb (3,632 kg). Car standards were set at 18 mpg for 1978, and increased annually to 27.5 mpg for 1985 and beyond. Manufacturers responded with significant vehicle downsizing, application of new powertrain technology, and reductions in aerodynamic drag and tire friction. These actions helped improve average fuel economy of U.S.-built passenger cars from 13 mpg in 1974 to 25 mpg by 1982. The fall of gasoline prices following an embargo in 1980–1981 encouraged consumers to purchase larger vehicles. This mix shift slowed manufacturers' CAFE improvement by the mid-1980s, despite continued improvements in individual model fuel economy, since CAFE is based on all vehicles sold. The Secretary of Transportation has the authority to reduce the car CAFE standards from 27.5 mpg to 26 mpg. This authority was used in 1986 when it became clear that market factors would prevent CAFE compliance by a large number of manufacturers.

A separate requirement to encourage new car fuel efficiency was created through the Energy Tax Act of 1978. This act created a "Gas Guzzler" tax on passenger cars whose individual fuel economy value fell below a certain threshold, starting in 1980. The tax is progressively higher at lower fuel economy levels. This act has since been amended both to increase the threshold level and to double the tax. The Gas Guzzler tax is independent of CAFE standards.

Environmental groups have long favored increasing the CAFE standards to reduce oil consumption and pollution . At the same time, the automobile industry has fought hard to avoid raising mileage standards, claiming increased regulation would reduce competitiveness and cost jobs. After the Persian Gulf War in 1991, some members of Congress proposed raising CAFE standards to 45 mpg for cars and 35 mpg for light trucks by 2001. Proponents of the plan claimed it would save 2.8 million barrels of oil per day, or more oil than is imported from Persian Gulf countries (about 2.4 million barrels per day in 2000). Strongly opposed by the automobile industry, the efficiency increase failed in Congress.

Cheap oil prices in the 1990s decreased Americans' concerns about fuel efficiency, and sales of larger cars boomed. Since 1988, nearly all technology gains in automobile efficiency have been offset by increased weight and power in new vehicles. The popular Sport Utility Vehicle (SUV), decried by environmentalists, became the new model of gas guzzler. Due to the "SUV loophole" in the CAFE laws, the SUV was classified as a light truck and was exempted from higher mileage standards and fines for inefficiency, although opponents of the vehicles claim that they are used more like cars and should be classified as such. By law, SUVs can emit up to five times more nitrogen oxides than cars, and have a lower fleet mileage standard of 20.7 mpg. By 2001, SUVs and light trucks accounted for nearly half of all new automobiles sold. Because of the high sales of large vehicles, United States automobile efficiency reached its lowest point in 21 years in 2001, despite new technology.

Another battle between environmentalists and the automobile industry occurred in March 2002, when Congress considered raising CAFE standards by 50% by the year 2015. Environmental and other groups claimed that increased efficiency would reduce America's dependence on foreign oil, would reduce pollution and greenhouse gases in the environment , and eliminate the need to drill for oil in sensitive regions such as the Arctic National Wildlife Refuge (ANWR) and offshore areas. The bill was strongly opposed by the automobile industry, and did not pass.

[Brian Geraghty and Douglas Dupler ]