In a new study, a team from the University of Central Florida and MIT has found that the US Corporate Average Fuel Economy (CAFE) Standards is an effective policy solution that does increase the adoption of EVs, whether it is implemented alone or in conjunction with another policy such as government incentives.
In a study published in the journal Energy Policy, the researchers developed an agent-based model to estimate the potential future market shares of EVs considering the existing inherent uncertainties under different policy scenarios, including the current footprint-based CAFE regulation.
Under the current CAFE standards, the determination of a manufacturer’s compliance is based on the annual production volume-weighted average fuel economy of a manufacturer’s vehicle fleet. If the average mpg of manufactured vehicles cannot satisfy the standards, the manufacturer is fined for each 1 mpg that falls below the CAFE levels.
… recent scientific research has revealed that the footprint-based standards might lead manufacturers to make design changes in favor of increasing the vehicle’s footprint in order to reduce the stringency of the applicable requirements, which might influence vehicle size and also eventually influence production costs (Ullman, 2016). Hence, there is a chance that, in the long run, the CAFE standards incur a “co-impact”, resulting in consumers not being able to find or afford a vehicle that best meets their needs. One reason therefor is the hypothesis that consumers may focus more on visible attributes of vehicles such as size when purchasing a vehicle. Another reason why this may be the case is the increased costs of more fuel-efficient vehicles as a result of the implementation of CAFE standards. Furthermore, auto manufacturers may attempt to meet the CAFE standards by lightweighting their vehicles, which may result in consumers having concerns over vehicle safety, and thus negatively affect consumers’ preferences.
Despite evident discussions on the environmental benefits of fleet electrification, there are several barriers to their widespread adoption. One of these barriers is, without a doubt, the consumer behavior, which, once accounted for, can provide useful insights into the market responses to CAFE regulation. Additionally … further research on the impacts of CAFE standards on the vehicle market is significant to enable improved policy analysis of the implications of CAFE. Furthermore, the time that it takes vehicle manufacturers to switch their vehicle portfolios to the ones with electric powertrains, and that it takes consumers to adopt to such a transformation presents another barrier. Hence, using the agent-based modeling technique, this study aims to contribute to the relevant literature by investigating the consumer behavior as well as the manufacturers’ reaction to CAFE standards, and by estimating the market penetration of EVs under various real-life scenarios.—Sen et al.
Agent-based modeling (ABM) is a method used for studying systems comprising interacting agents and that exhibit emergent properties arising from the interactions of the agents. ABM is a bottom-up approach; i.e., the behavior of agents at the micro-level determines system behavior at the macro-level.
The researchers in the current study extended their previously developed Electric Vehicle Regional Market Penetration (EVReMP) model to be able to analyze EV market penetration under the influence of CAFE regulation and existing government incentives.
|The EVReMP model with the added extensions. Sen et al. Click to enlarge.|
The researchers ran their stimulations under four different scenarios: no policy; government incentives only; CAFE only; and incentives and CAFE combined. The results for EVs include PHEVs, EREVs, and BEVs.
Among their findings:
The no-policy scenario results in an EV market share of 4%. Hybrid sales steadily increase, with market share steadily increasing from 3.1% in 2016 to almost 10% in 2030.
Under the government incentives scenario, EV market share climbs up to 25% in the year 2030. HEV market share is lower compared to the no-policy scenario, but the number of HEV sales still more than double in 2030 compared to HEV sales in 2016. BEVs, with market share of 11% by 2030, reached a higher number of sales than PHEVs (6%) and EREVs (7%) by 2030
Under the CAFE only scenario, EVs achieve 29% market share by 2030. EREV and BEV market shares both increase more rapidly after 2024, with their total market shares comprising more than 75% of the total EV market share by 2030. ICE Vehicle market share decreases more rapidly after 2023, reducing ICEV market shares by almost 64% by 2030. When only CAFE regulation is implemented, EV market penetration increases further compared to when only government incentives are implemented.
CAFE in conjunction with continued financial support for EVs was the most effective policy measure for EV market penetration. In this scenario, EV market shares reach more than 30% by 2030, with the increased shares of all-electric vehicles making up almost 80% of all EVs compared to all other scenarios. Like in the CAFE-only scenario, this increase accelerates after 2024.
Based on the simulation results under the scenarios in which governmental intervention was accounted for, the years 2023 and 2024 are estimated to be a major turning point with significant increases in progress with respect to EV adoption and particularly for the adoption of all electric vehicles. One likely reason for this observation is that increasing the fuel economy and/or changing the design (i.e. increasing the footprint) of conventional vehicles to comply with the CAFE regulation is expected to become as costly for vehicle manufacturers (if not more so) as manufacturing more EVs in a vehicle fleet by 2023 or 2024. This means that manufacturers will invest more in EV manufacturing so as not to lose their profits by risking regulatory violations. This observation based on the findings is consistent with the fact that it also takes time for both manufacturers to change their vehicle portfolio and for consumers to adopt new technology vehicles, i.e. AFVs.
… although the impacts of technological advancement regarding EVs and the associated potential decline in the cost of EVs are not considered in the model, it can be inferred that EV market penetration will likely increase more rapidly with a greater deployment of recharging stations in the US, as confirmed in the results of the sensitivity analysis. The results of this study also indicate that the government should be persistent in the implementation of CAFE regulation, and that the CAFE standards work best when implemented in conjunction with the availability of financial support for at least 10 years, especially from now until 2025.—Sen et al.
Burak Sen, Mehdi Noori, Omer Tatari (2017) “Will Corporate Average Fuel Economy (CAFE) Standard help? Modeling CAFE’s impact on market share of electric vehicles,” Energy Policy, Volume 109, Pages 279-287 doi: 10.1016/j.enpol.2017.07.008