DOT, EPA unveil joint proposal for fuel economy and greenhouse gas emission standards: 49.6 mpg CAFE, 163 g/mile GHG in 2025; flexibilities and incentives
16 November 2011
The US Environmental Protection Agency (EPA) and the US Department of Transportation (DOT) formally unveiled their joint proposal to set stronger fuel economy and greenhouse gas pollution standards for Model Year 2017-2025 passenger cars and light trucks. DOT’s National Highway Traffic Safety Administration (NHTSA) is proposing Corporate Average Fuel Economy (CAFE) standards under the Energy Policy and Conservation Act (EPCA), as amended by the Energy Independence and Security Act (EISA), and EPA is proposing national greenhouse gas (GHG) emissions standards under the Clean Air Act.
The standards proposed would apply to light duty vehicles manufactured in model years 2017 through 2025. The proposed CAFE standards are projected to require, on an average industry fleet-wide basis for cars and trucks combined, 40.1 mpg US (5.87 L/100km) in model year 2021, and 49.6 mpg (4.74 L/100km) in model year 2025. EPA’s proposed GHG standards, which are harmonized with NHTSA’s CAFE standards, are projected to require 163 grams/mile of carbon dioxide (CO2) in model year 2025.
The 163 g/mile limit would be equivalent to 54.5 mpg (4.3 L/100km), if the vehicles were to meet this CO2 level all through fuel economy improvements. The agencies expect, however, that a portion of these improvements will be made through reductions in air conditioning leakage, which would not contribute to fuel economy.
The action builds on the first phase of the Obama Administration’s national program (2012-2016) (earlier post), which will raise fuel efficiency equivalent to 35.5 mpg by 2016 and result in an average light vehicle tailpipe CO2 level of 250 grams per mile.
The proposal for the second phase follows President Obama’s announcement in July that the Administration and 13 major automakers representing more than 90% of all vehicles sold in the US had agreed to build on the first phase of the national vehicle program. (Earlier post.)
Taken together, these two actions would reduce greenhouse gas emissions by half and result in model year 2025 light-duty vehicles with nearly double the fuel economy of model year 2010 vehicles.
The national policy on fuel economy standards and greenhouse gas emissions created by DOT and EPA provides regulatory certainty and flexibility that reduces the cost of compliance for auto manufacturers while reducing oil consumption and harmful air pollution. By continuing the national program developed for MY 2012-2016 vehicles, EPA and DOT have designed a proposal that allows manufacturers to keep producing a single, national fleet of passenger cars and light trucks that satisfies all federal and California standards.
There will be an opportunity for the public to comment on the proposal for 60 days after it is published in the Federal Register. In addition, DOT and EPA plan to hold several public hearings around the country to allow further public input. California plans to issue its proposal for model year 2017-2025 vehicle greenhouse gas standards on 7 December and will finalize its standards in January.
The agencies project that this second phase of the national program will save approximately 4 billion barrels of oil and 2 billion metric tons of GHG emissions over the lifetimes of those light duty vehicles sold in MY 2017- 2025. The agencies estimate that fuel savings will far outweigh higher vehicle costs, and that the net benefits to society of the MY 2017-2025 National Program will be in the range of $311 billion to $421 billion (7 and 3 percent discount rates, respectively) over the lifetimes of those vehicles sold in MY 2017-2025.
The agencies also project that higher costs for new vehicle technology will add, on average, about $2000 for consumers who buy a new vehicle in MY 2025. Those consumers who drive their MY 2025 vehicle for its entire lifetime will save, on average, $5200 to $6600 (7 and 3 percent discount rates, respectively) in fuel savings, for a net lifetime savings of $3,000 to 4,400, assuming gasoline prices remain at essentially current levels.
For those consumers who purchase their new MY 2025 vehicle with cash, the discounted fuel savings will offset the higher vehicle cost in less than 4 years, and fuel savings will continue for as long as the consumer owns the vehicle.
Those consumers who buy a new vehicle with a typical 5-year loan will benefit from an average monthly cash flow savings of about $12 during the loan period, or about $140 per year, on average, as the monthly fuel savings more than offsets the higher monthly payment due to the higher incremental vehicle cost.
The standards are structured so as not to create incentives to manufacture vehicles of any particular size (so, for example, there is no incentive to downsize), and the agencies say they have included costs of preserving performance, utility and safety features in developing the standards.
NHTSA and CAFE
Consistent with its statutory authority, NHTSA is proposing two phases of passenger car and light truck CAFE standards: the first phase runs from MY2017-2021, with proposed standards that are projected to require, on an average industry fleet wide basis, 40.9 mpg in MY 2021. The second phase of the CAFE program runs from MYs 2022-2025 and represents conditional proposed standards that are projected to require, on an average industry fleet wide basis, 49.6 mpg in model year 2025.
Given the long time frame at issue in setting standards for MYs 2022-2025, and given NHTSA’s obligation to conduct a separate rulemaking in order to establish final standards for vehicles for those model years, NHTSA and EPA are proposing to undertake a comprehensive mid-term evaluation and agency decision-making process.
The CAFE standards are based on fuel economy-footprint curves, where each vehicle has a different fuel economy “target” depending on its footprint. Generally, the larger the vehicle footprint, the lower the corresponding vehicle fuel economy target.
Flexibilities. For the first time, manufacturers will be able to generate fuel consumption improvement values for improvements in air conditioning (A/C) system efficiency to use in complying with the CAFE standards, and for real-world improvements through the use of “off-cycle” technologies that raise fuel economy in ways that are not reflected on the current test procedures. Such technologies might include solar panels on hybrids, adaptive cruise control or active aerodynamics. These flexibilities will be implemented in the CAFE program in the same way that they are implemented in EPA’s GHG program.
Also for the first time for MYs 2017-2025, manufacturers will be able to generate fuel consumption improvement values for mild and strong hybrid electric (HEV) full size pickup trucks if this advanced technology is utilized across a designated percentage of a manufacturers’ full size pickup trucks. This incentive further encourages manufacturers to begin to transform the most challenged category of vehicles in terms of the penetration of advanced technologies, the agencies said.
Eligibility for this credit would be conditioned on a minimum penetration of the technology in a manufacturer’s full size pickup truck fleet. Mild HEVs pickup trucks would be eligible for a per vehicle fuel consumption improvement of 0.0011 gallons/mile (10 grams of CO2 per mile) during MY 2017-2015 if the technology is used with at least 30% of a company’s 2017 full-size pickup production and ramping up to at least 80% in MY 2021. Strong HEV pickup trucks would be eligible for 0.0023 gallons/mile (20 grams of CO2 per mile) per vehicle improvement during MY 2017-2025 if the technology is used on at least 10% of the company’s full size pickups. These volume thresholds are being proposed in order to encourage rapid penetration of these technologies in this vehicle segment.
In addition to the specific hybridization credits, because there are other technologies besides mild and strong hybrids that can significantly reduce fuel consumption and GHG emissions in pickup trucks, manufacturers can also take advantage of a performance-based incentive for full-size pickup trucks that achieve a significant fuel consumption reduction below the applicable target. To avoid double-counting, the same vehicle would not receive credit under both the HEV and performance-based approaches.
In the CAFE program for MYs 2017–2019, the fuel economy of dual fuel vehicles (e.g, plug-in hybrids, CNG or flex-fuel vehicles) will be determined in the same manner as specified in the MY 2012–2016 rule, and as defined by EISA.
EPA and GHG
EPA’s proposed standards are based on CO2 emissions-footprint curves, where each vehicle has a different CO2 emissions compliance target depending on its footprint value (related to the size of the vehicle). Generally, the larger the vehicle footprint, the higher the corresponding vehicle CO2 emissions target. As a result, the burden of compliance is distributed across all vehicles and all manufacturers.
For passenger cars, the CO2 compliance values associated with the footprint curves would be reduced on average by 5% per year from the model year 2016 projected passenger car industry-wide compliance level through model year 2025. In recognition of manufacturers’ special challenges in improving the fuel economy and GHG emissions of full-size pickup trucks while preserving the utility (e.g., towing and payload capabilities) of those vehicles, EPA is proposing a lower annual rate of improvement for light-duty trucks in the early years of the program.
For light-duty trucks, the proposed average annual rate of CO2 emissions reduction in model years 2017 through 2021 is 3.5% per year and for model years 2022 through 2025 it is 5% per year.
Flexibilities. EPA’s proposed program provides compliance flexibility to manufacturers.
Credit Banking and Trading. EPA is proposing to continue the same program for averaging, banking, and trading of credits established in the MY 2012-2016 program. Credits may be carried forward, or banked, for five years, or carried back three years to cover a deficit in a previous year. A manufacturer may transfer credits across all vehicles it produces, both cars and light trucks. Trading of credits between companies would also be permitted. To facilitate the transition to the increasingly more stringent 2017-2025 standards, EPA is proposing an additional CO2 credit carry-forward provision, allowing credits generated from MY 2010 through 2016 to be used through MY 2021.
Air Conditioning Improvement Credits. As with the MY2012-2016 program, manufacturers will be able to generate CO2-equivalent credits to use in complying with the CO2 standards for improvements in air conditioning (A/C) systems, both for approaches that reduce tailpipe CO2 through efficiency improvements and for reduced refrigerant leakage through better components and through the use of alternative refrigerants with lower global warming potential than presently used (reduces hydrofluorocarbons (HFC) emissions).
Off-Cycle Credits. Off-cycle technologies achieve CO2 reductions that are not reflected on current test procedures. Such technologies might include solar panels on hybrids, adaptive cruise control or active aerodynamics. EPA is proposing to expand and streamline the MYs 2012- 2016 off-cycle credit provisions. For MY 2017 and later, EPA is proposing a pre-approved list of technologies and credit values. Further, manufacturers could also apply for off-cycle technologies beyond those listed (or for different credit values for the listed off-cycle technologies) if they have sufficient data.
Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, and Fuel Cell Vehicles. To facilitate market penetration of the most advanced vehicle technologies as rapidly as possible, EPA is proposing an incentive multiplier for compliance purposes for all electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCV) sold in MYs 2017 through 2021. This multiplier approach means that each EV/PHEV/FCV would count as more than one vehicle in the manufacturer’s compliance calculation. EPA is proposing that EVs and FCVs start with a multiplier value of 2.0 in MY 2017, phasing down to a value of 1.5 in MY 2021. PHEVs would start at a multiplier value of 1.6 in MY 2017 and phase down to a value of 1.3 in MY 2021. There is no multiplier for MYs 2022-2025.For EVs, PHEVs and FCVs, EPA is proposing to set a value of 0 g/mile for the tailpipe compliance value for EVs, PHEVs (electricity usage) and FCVs for MY 2017-2021, with no limit on the quantity of vehicles eligible for 0 g/mi tailpipe emissions accounting. For MY 2022-2025, EPA is proposing that 0 g/mi only be allowed up to a per-company cumulative sales cap.
Incentives for Advanced Technologies Including Hybridization for Full-Size Pick-Up Trucks. EPA is proposing an additional CO2 per vehicle credit, for mild and strong hybrid electric (HEV) full size pickup trucks if this advanced technology is utilized across a designated percentage of a manufacturers’ full size pickup trucks. This incentive further encourages manufacturers to begin to transform the most challenged category of vehicles in terms of the penetration of advanced technologies. This should allow additional flexibility to achieve the higher levels of truck stringencies in MYs 2022-2025.
Eligibility for this credit would be conditioned on a minimum penetration of the technology in a manufacturer’s full size pickup truck fleet. Mild HEVs pickup trucks would be eligible for a per vehicle credit of 10 g/mi during MY 2017-2015 if the technology is used with at least 30% of a company 2017 full-size pickup production and ramping up to at least 80% in MY 2021. Strong HEV pickup trucks would be eligible for 20 g/mi per vehicle credit during MY 2017-2025 if the technology is used on at least 10% of the company’s full size pickups.
In addition to the specific hybridization credits, because there are other technologies besides mild and strong hybrids which can significantly reduce GHG emissions and fuel consumption in pickup trucks, EPA is also proposing a performance-based incentive CO2 emissions credit for full-size pickup trucks that achieve a significant CO2 reduction below the applicable target. To avoid double-counting, the same vehicle would not receive credit under both the HEV and performance based approaches.
Treatment of Compressed Natural Gas (CNG), Plug-in Hybrid Electric Vehicles (PHEVs), and Flexible Fuel Vehicles (FFVs). EPA is proposing a methodology for determining CO2 levels for plug-in hybrid electric vehicles (PHEVs) and dual fuel compressed natural gas (CNG) vehicles based on the recognition that, once a consumer has paid several thousand dollars to be able to use a fuel that is considerably cheaper than gasoline, it is very likely that the consumer will seek to use the cheaper fuel as much as possible.
EPA is proposing to use the Society of Automotive Engineers “utility factor” methodology (based on vehicle range on the alternative fuel and typical daily travel mileage) to determine the assumed percentage of operation on gasoline and percentage of operation on the alternative fuel.
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