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Corporate Average Fuel Economy (CAFE)

 
 

By Michael J. Lynch, University of South Florida, FL

 
 

The Corporate Average Fuel Economy Act (CAFE) was first passed in the US in 1975 to improve vehicle efficiency and lower America’s dependence on foreign supplies. These standard were significantly altered in 2011 under the Obama Administration in an effort to improve vehicle efficiency in the US and in response to criticisms that the standard had remained stagnant. The CAFE standard is regulated by the National Highway Traffic Safety Administration while the US Environmental Protection Agency carries out scientific tests that measure vehicle fuel efficiency.

Though passes in 1975, the first CAFE requirements went into effect in the US in 1978 and applied only to passenger vehicles. Regulations for light trucks went into effect in 1979 and were divided into 2-wheel and 4-wheel drive standards. The truck definition in the standards excluded certain large vehicles (e.g., the Hummer) from being required to meet CAFE standards. Initial mile per gallon requirements for vehicles were modest, and included an 18 mpg overall standard for passenger vehicles and 17.2 for 2-wheel drive light trucks and 15.8 mpg for 4-wheel drive trucks. These standards rose incrementally, and by 1984, passenger vehicles were required to obtain 27.5 mpg and light trucks 19.7 and 18.9 respectively. The standard was reduced from 1986-1989, and returned to 1984 levels in 1990. Those standards remained largely unchanged, though there were periodic increases for light trucks, until major revision of CAFE requirements in 2011. 2011 marked the first year CAFE standards had been changed for passenger vehicles since 1990.

Research has questioned whether CAFE regulations are effective in promoting enhanced fuel economy in vehicles (e.g., Austin and Dinan, 2005), and it is beyond the scope of this brief review to answer this question effectively. One response is to note, however, that some manufacturers selected to pay CAFE fines rather than comply with those regulations. This has little effect on manufacturers since they include the costs of fines in vehicle prices. Moreover, given the structure of CAFE (the fine isn’t a per vehicle fine, but is based on the average mpg of all vehicles in a manufacturer’s fleet), manufacturers can avoid CAFE fines by selling low cost, efficient vehicles that offset the mpg of luxury vehicles.

CAFE standards have been modified significantly in recent years to improve vehicle efficiency. Rather than provide a history of those changes, here we focus on the most recent requirements.

In 2011, thirteen car manufacturers reached an agreement with the Obama Administration to improve vehicle fuel economy to 54.5 mpg by model year 2025 – a significant improvement over the more most recent standard of 30.2 mpg. The automakers involved in the agreement manufacture more than 90% of all cars sold in the US, thus this agreement was hailed as a important new agreement on vehicle fuel efficiency. In further discussion of the policy, Volkswagen has rejected the plan and did not sign the agreement.

The new standards are quite complex and allow mpg ratings for vehicles to vary with a vehicles “footprint” – measured by the size of the car. Smaller cars are required to be more efficient. For details on these regulations see CAFE.

One of the issues raised by CAFE regulations relates to the use of fines as an effective mechanism for controlling vehicle fuel efficiency. Non-compliance penalties are small, $ 5.50 per every 0.1 mpg by which the manufacturer’s fleet fails to meet the standard, multiplied by the number of vehicles sold. While the aggregate fine may appear large, they are the equivalent of only a few hundred dollars per vehicle, which hardly impact the price of a luxury vehicle and is insufficient to cause consumers of luxury cars to change their decisions. These issues and an alternative design for CAFE have been addressed by green criminologists (Lynch and Stretesky, 2012).
 
 
Further Reading



References

Austin, D., & Dinan, T. (2005). Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes. Journal of Environmental Economics and management, 50(3), 562-582.

Lynch, Michael J., and Paul B. Stretesky. 2012. “A Proposal for a New Vehicle Based Carbon Tax: Vehicle Based Global Warming and Criminology.” In R. White’s (ed) Climate Change from a Criminological Perspective. Springer.

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