President Obama Proposes Significant Increase in CAFE Standards

President Barack Obama and the nation’s predominant automakers have agreed to increase new vehicles’ fuel mileage.  The major way to accomplish this is to reduce the size of vehicles.  By 2025, the Corporate Average Fuel Economy (CAFE) must be 55.4 mpg for cars.  That’s up from the 2009 Obama mandate of 35.5 mpg by 2016.  The CAFE standard for 2011 is 30.2 mpg, with light trucks having slightly less burdensome standards.

The Obama administration says the new standards will save drivers $8,200 in fuel over the life of a car.  Between now and 2015, Americans will save $1.7 trillion on fuel costs, eliminate six billion metric tons of carbon dioxide pollution and use 12 billion fewer barrels of oil.  Environmentalists applauded the new standards.  According to President Obama, “This agreement on fuel standards represents the single most important step we’ve ever taken as a nation to reduce our dependence on foreign oil.”  Joining the president at the announcement were executives of Detroit’s Big Three automakers: GM, Chrysler and Ford.  GM and Chrysler were bailed out of insolvency by the Obama administration with taxpayer money.  The government still owns 27 percent of GM; the United Auto Workers, an ally of the Obama administration and which supports the revised CAFE standards, owns 46.5 percent of Chrysler.

The tiered standards are expected to yield approximately $50 billion in net benefits over the life of model year 2014 to 2018 vehicles.  Additionally, it will result in significant long-terms savings for vehicle owners and operators.  President Obama, the U.S. Department of Transportation (DOT) and the Environmental Protection Agency (EPA) worked closely with truck and engine manufacturers, fleet owners, the State of California, and environmental groups – among them, Navistar, Volvo, Chrysler, and Con-way – to garner support for the new standards.  “While we were working to improve the efficiency of cars and light-duty trucks, something interesting happened,” said President Obama.  “We started getting letters asking that we do the same for medium and heavy-duty trucks.  They were from the people who build, buy, and drive these trucks.  And today, I’m proud to have the support of these companies as we announce the first-ever national policy to increase fuel efficiency and decrease greenhouse gas pollution from medium-and heavy-duty trucks.”

Waste Management CEO David Steiner said the rules will help his company meet a  goal of reducing emissions 15 percent by 2020.  The company will save 350 million gallons of fuel over the life of their vehicles.  FedEx CEO Fred Smith said that commercial vehicles account for 20 percent of all transportation emissions.  “Today’s progress is a win for the transportation industry, for the environment and for all Americans as we seek to decrease U.S. dependency on oil,” Smith said.

According to the White House,  the revised heavy-truck rules will cost owners as much as $8 billion in additional technology, but “will save American businesses that operate and own commercial vehicles approximately $50 billion in fuel costs over the life of the program.”  The majority of fleet operators, according to the EPA, are likely to recover their up-front costs within a year or two.  Under the new program, heavy-duty vehicles are divided into three major categories: combination tractors (semi-trucks), heavy-duty pickup trucks and vans, and what is referred to as “vocational” or special-purpose vehicles such as transit buses and garbage trucks.  More specific targets within each of these categories are based on each vehicle’s design and purpose.

American Trucking Association (ATA) president & CEO Bill Graves said the new regulations are “welcome news to us in the trucking industry.  Our members have been pushing for the setting of fuel efficiency standards for some time and today marks the culmination of those efforts.”  He said that in 2007, the ATA endorsed a six-point sustainability program that included a proposal to set “technologically feasible” efficiency standards.

The new rules do not mean that President Obama has given up on his backing of electric vehicles.  Writing on the Climate Spectator website, Jessie Giles says that “While there has been some suggestion that Barack Obama’s new measure to double fuel economy targets for cars in the U.S. might be bad news for electric cars, at Better Place our assessment is that this will in fact be important for increasing the adoption of zero-emission vehicles.  The agreement to increase the CAFE standards is good news, not just in terms of taking steps to stretch our limited oil resources further and helping to reduce our carbon emissions.  Critically, it will also help to increase the adoption of zero-emissions vehicles such as electric cars.  Now, the twist: manufacturers must meet the CAFE standards on a sales-weighted basis – that is, the average fuel economy of all the cars sold by that particular car company.  What’s the easiest way of achieving the new standards on a sales-weighted basis?  It’s by increasing the proportion of electric cars in the manufacturer’s sales mix. It’s far easier to increase this proportion of electric cars than it is to make improvements in the current fuel consumption of every single car in the rest of the portfolio, where years of product development have produced incremental, but relatively minor improvements.”