5.5.1.4 Fuel economy standards – road transport

Most industrialized nations now impose fuel economy requirements (or their equivalent in CO₂ emissions requirements) on new light-duty vehicles (Plotkin, 2004; An and Sauer, 2004). The first standards were imposed by the United States in 1975, requiring 27.5 mpg (8.55 L/100 km) corporate fleet averages for new passenger cars and 20.7 mpg (11.36 L/100 km) for light trucks (based on tests instituted by the US Environmental Protection Agency, using the ‘CAFE’ driving cycle) by 1985. The passenger car standard remains unchanged, whereas the light truck standard has recently been increased to 22.2 mpg (10.6 L/100 km) for the 2007 model year and to 23.5 mpg (10.0 L/100 km) in model year 2010.^[40] Additional standards (some voluntary) include:

• European Union: a 2008 fleet wide requirement^[41] of 140 gCO₂/km, about 41 mpg (5.74 L/100 km) of gasoline equivalent, using the New European Driving Cycle (NEDC), based on a Voluntary Agreement between the EU and the European manufacturers, with the Korean and Japanese manufacturers following in 2009. Recent slowing of the rate of efficiency improvement has raised doubts that the manufacturers will achieve the 2008 and 2009 targets (Kageson, 2005).
• Japan: a 2010 target of about 35.5 mpg (6.6 L/100 km) for new gasoline passenger vehicles, using the Japan 10/15 driving cycle based on weight-class standards.
• China: weight-class standards that are applied to each new vehicle using the NEDC driving cycle, with target years of 2005 and 2008. At the historical mix of vehicles, the standards are equivalent to fleet targets of about 30.4 mpg (7.7 L/100 km) by 2005 and 32.5 mpg (7.2 L/100 km) by 2008 (An and Sauer, 2004).
• Australia: a 2010 target for new vehicles of 18% reduction in average fuel consumption relative to the 2002 passenger car fleet, corresponding to 6.8 L/100 km, or 34.6 mpg. (DfT, 2003), based on a voluntary agreement between industry and government.
• The State of California has established GHG emission standards for new light-duty vehicles designed to reduce per-vehicle emissions by 22% in 2012 and 30% by 2016. Several US states have decided to adopt these standards, as well. At the time of writing, US industry and the federal government were fighting these standards in the courts.

The NEDC and Japan 10/15 driving cycles are slower than the US CAFE cycle and, for most vehicles (though probably not for hybrids), will yield lower measured fuel economy levels than the CAFE cycle for the same vehicles. Consequently, if they reach their targets, the EU, Japanese and Chinese fleets are likely to achieve fuel economies higher than implied by the values above if measured on the US test. A suggested correction factor (for the undiscounted test results) is 1.13 for the EU and China and 1.35 for Japan (An and Sauer, 2004), though these are likely to be at the high end of the possible range of values for such factors.^[42] Figure 5.18 shows the ‘corrected’ comparison of standards.

Figure 5.18: Fuel economy and GHG emission standards

Note: all the fuel economy targets represent test values based on artificial driving cycles. The standards in the EU and Australia are based on voluntary agreements. In most cases, actual on-road fuel economy values will be lower; for example, the US publishes fuel economy estimates for individual LDVs that are about 15% lower than the test val-ues and even these values appear to be optimistic. Miles/gallon is per US gallon.

Recent studies of the costs and fuel savings potential of technology improvements indicate considerable opportunity to achieve further fleet fuel economy gains from more stringent standards. For example, the US National Research Council (NRC, 2002) estimates that US light-duty vehicle fuel economy can be increased by 25–33% within 15 years with existing technologies that cost less than the value of fuel saved. A study by Ricardo Consulting Engineers for the UK Department for Transport (Owen and Gordon, 2002) develops a step-wise series of improvements in a baseline diesel passenger car that yields a 38% reduction in CO₂ emissions (a 61% increase in fuel economy), to 92 g/km, by 2013 using parallel hybrid technology at an incremental cost of 2300–3,100 £ (4200–5700 US$) with a 15,300 £ (28,000 US$) baseline vehicle. Even where fuel savings will outweigh the cost of new technologies, however, the market will not necessarily adopt these technologies by itself (or achieve the maximum fuel economy benefits from the technologies even if they are adopted). Two crucial deterrents are, first, that the buyers of new vehicles tend to consider only the first three years or so of fuel savings (NRC, 2002; Annema et al., 2001), and second, that vehicle buyers will take some of the benefits of the technologies in higher power and greater size rather than in improved fuel economy. Further, potential benefits for consumers over the vehicle’s lifetime are generally small, while risks for producers are high (Greene, 2005). Also, neither the purchasers of new vehicles nor their manufacturers will take into account the climate effects of the vehicles.

Strong criticisms have been raised about fuel economy standards, particularly concerning claimed adverse safety implications of weight reductions supposedly demanded by higher standards and increased driving caused by the lower fuel costs (per mile or km) associated with higher fuel economy.

The safety debate is complex and not easily summarized. Although there is no doubt that adding weight to a vehicle improves its safety in some types of crashes, it does so at the expense of other vehicles; further, heavy light trucks have been shown to be no safer, and in some cases less safe than lighter passenger cars, primarily because of their high rollover risk (Ross et al., 2006). The US National Highway Traffic Safety Administration (NHTSA) has claimed that fleet wide weight reductions ‘reduce’ fleet safety (Kahane, 2003), but this conclusion is strongly disputed (DRI, 2004; NRC, 2002). An important concern with the NHTSA analysis is that it does not separate the effects of vehicle weight and size. In any case, other factors, e.g., overall vehicle design and safety equipment, driver characteristics, road design, speed limits and alcohol regulation and enforcement play a more significant role in vehicle safety than does average weight.

Some have argued that increases in driving associated with reduced fuel cost per mile will nullify the benefits of fuel economy regulations. Increased driving ‘is’ likely, but it will be modest and decline with higher income and increased motorization. Recent data implies that a driving ‘rebound’ would reduce the GHG reduction (and reduce oil consumption) benefits from higher standards by about 10% in the United States (Small and Van Dender, 2007) but more than this in less wealthy and less motorized countries.

In deciding to institute a new fuel economy standard, governments should consider the following:

• Basing stringency decisions on existing standards elsewhere requires careful consideration of differences between the home market and compared markets in fuel quality and availability; fuel economy testing methods; types and sizes of vehicles sold; road conditions that may affect the robustness of key technologies; and conditions that may affect the availability of technologies, for example, availability of sophisticated repair facilities.
• There are a number of different approaches to selecting stringency levels for new standards. Japan selected its weight class standards by examining ‘top runners’ – exemplary vehicles in each weight class that could serve as viable targets for future fleet wide improvements. Another approach is to examine the costs and fuel saving effects of packages of available technologies on several typical vehicles, applying the results to the new vehicle fleet (NRC, 2002). Other analyses have derived cost curves (percent increase in fuel economy compared with technology cost) for available technology and applied these to corporate or national fleets (Plotkin et al., 2002). These approaches are not technology-forcing, since they focus on technologies that have already entered the fleet in mass-market form. More ambitious standards could demand the introduction of emerging technologies. Selection of the appropriate level of stringency depends, of course, on national goals and concerns. Further, the selection of enforcement deadlines should account for limitations on the speed with which vehicle manufacturers can redesign multiple models and introduce the new models on a schedule that avoids severe economic disruption.
• The structure of the standard is as important as its level of stringency. Basing target fuel economy on vehicle weight (Japan, China) or engine size (Taiwan, South Korea) will tend to even out the degree of difficulty the standards impose on competing automakers, but will reduce the potential fuel economy gains that can be expected (because weight-based standards eliminate weight reduction and engine-size-based standards eliminate engine downsizing as viable means of achieving the standards). Basing the standard on vehicle wheelbase times track width may provide safety benefits by providing a positive incentive to maintain or increase these attributes. Using a uniform standard for all vehicles or for large classes of vehicles (as in the US) is simple and easy to explain, but creates quite different challenges on different manufacturers depending on the market segments they focus on.
• Allowing trading of fuel economy ‘credits’ among different vehicles or vehicle categories in an automaker’s fleet, or even among competing automakers, will reduce the overall cost of standards without reducing the total societal benefits, but may incur political costs from accusations of allowing companies or individuals to ‘buy their way out’ of efficiency requirements.
• Alternatives (or additions) to standards are worth investigating. For example, ‘feebates’, which award cash rebates to new vehicles whose fuel economy is above a designated level (often the fleet average) and charge a fee to vehicles with lower fuel economy, may be an effective market-based measure to increase fleet fuel economy. An important advantage of feebates is that they provide a ‘continuous’ incentive to improve fuel economy, because an automaker can always gain a market advantage by introducing vehicles that are more efficient than the current average.