Automobile and Light Truck Fuel Economy: The CAFE Standards

Automobile and Light Truck Fuel Economy: The CAFE Standards

Order Code RL33413
Automobile and Light Truck Fuel Economy:
The CAFE Standards
Updated May 7, 2008
Brent D. Yacobucci
Specialist in Energy and Environmental Policy
Resources, Science, and Industry Division
Robert Bamberger
Specialist in Energy Policy
Resources, Science, and Industry Division

Automobile and Light Truck Fuel Economy:
The CAFE Standards
Summary
On April 22, 2008, the National Highway Traffic Safety Administration
(NHTSA) released a Notice of Proposed Rulemaking (NOPR) that would establish
fuel economy standards for model year (MY) 2011-MY2015 passenger cars and light
trucks. The rulemaking is in followup to the Energy Independence and Security Act
of 2007 (EISA, P.L. 110-140), enacted in mid-December 2007, which restructured
the automotive fuel economy program. It established a corporate average fuel
economy (CAFE) standard of 35 miles per gallon (mpg) by MY2020 for the
combined passenger automobile and light truck fleet. However, to meet the combined
standard, automakers will continue the practice of calculating the CAFE of their car
and light truck fleets separately. The proposed rule would establish passenger car fuel
economy at 31.2 mpg in MY2011, increasing to 35.7 mpg in MY2015. For trucks,
the comparable goals for compliance are 25.0 to 28.6 mpg. Lastly, the design of the
program will be “attribute” based; every model of new vehicle will have its own
target, based on the vehicle’s footprint.
Manufacturers’ passenger car fleets will be required to come within 92% of the
overall standard for a given model year. Above that floor, manufacturers can earn
credits for exceeding the standards in one vehicle class and apply credits to boost the
CAFE of a different vehicle class that is short of compliance. Additionally, credits
may be sold and bought among manufacturers. CAFE credits for the manufacture of
flexible-fueled vehicles (FFV) were retained by EISA, but will be phased out by
MY2020. Civil penalties assessed for non-compliance will be deposited to the
general fund of the U.S. Treasury to support future rulemaking and to provide grants
to U.S. manufacturers for research and development, and retooling in support of
increasing fuel efficiency. The law also requires the development of standards for
“work trucks” and commercial medium- and heavy-duty on-highway vehicles.

An important development bearing on CAFE was the denial in late December
2007 of a waiver to the state of California by the Environmental Protection Agency
that would have permitted California (and other interested states) to set vehicle
greenhouse gas standards under the Clean Air Act. Reducing fuel consumption could
be one of the major tools for reducing vehicle emissions. A waiver would allow these
states to require more stringent fuel economy of vehicles sold in those states than
required by the new standards established by EISA. Some have suggested that
language in the NOPR pre-empting states from regulating tailpipe emissions would
be challenged in court if included in any final rule.
A November 15, 2007, decision by the U.S. Court of Appeals for the Ninth
Circuit overturned a final rule issued by NHTSA for MY2008-MY2011 light trucks.
The Court ruled that NHTSA had not conducted a sufficiently rigorous analysis to
measure whether the standards would have a beneficial effect in improving
environmental quality through reduction of greenhouse gas emissions. The analysis
accompanying the NOPR for MY2011-MY2015 appears intended to address the
deficiencies identified by the Court in the earlier rulemaking.

Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Current CAFE Standards
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Major Issues in the CAFE Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
How the Interim Rule for MY2011-MY2015 Would Work . . . . . . . . . . . . . . . . 7
Overview of the Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Reformed Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Challenge to the Rule and Court Decision . . . . . . . . . . . . . . . . . . . . . . . 9
CAFE and Reduction of Carbon Dioxide Emissions: Additional
History and Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Overview of Congressional Interest in CAFE (1991-2005) . . . . . . . . . . . . . . . . 12
In-Use Fuel Economy Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Figures
Figure 1. Passenger Car and Light Truck Fuel Economy Averages for
Model Years 1978-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
List of Tables
Table 1. Fuel Economy Standards for Passenger Cars and Light Trucks:
Model Years 2000 Through 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. NHTSA-Estimated Societal Benefits and Costs From Proposed
CAFE Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Automobile and Light Truck Fuel Economy:
The CAFE Standards
Most Recent Developments
Corporate Average Fuel Economy (CAFE) standards are fleetwide fuel economy
averages that motor vehicle manufacturers must meet each model year (MY). On
April 22, 2008, the National Highway Traffic Safety Administration (NHTSA)
released a Notice of Proposed Rulemaking (NOPR) that would establish fuel
economy standards for MY2011-MY2015 passenger cars and light trucks. The
rulemaking is in followup to the Energy Independence and Security Act of 2007
(EISA, P.L. 110-140), enacted in mid-December 2007, which restructured the
automotive fuel economy program. It established a corporate average fuel economy
(CAFE) standard of 35 miles per gallon (mpg) by MY2020 for the combined
passenger automobile and light truck fleet. However, to meet the combined standard,
automakers will continue the practice of calculating the CAFE of their car and light
truck fleets separately. The proposed rule would establish passenger car fuel
economy at 31.2 mpg in MY2011, increasing to 35.7 mpg in MY2015. For trucks,
the comparable goals for compliance are 25.0 to 28.6 mpg. Lastly, the design of the
program will be “attribute” based; every model of new vehicle will have its own
target, based on the vehicle’s footprint. The target fuel economy for a vehicle of a
given footprint will increase over time, and will be derived from application of a
mathematical function that will relate vehicle attributes to fuel efficiency levels.
Manufacturers’ passenger car fleets will be required to come within 92% of the
overall standard for a given model year. Above that floor, manufacturers can earn
credits for exceeding the standards in one vehicle class and apply credits to boost the
CAFE of a different vehicle class that is short of compliance. Additionally, credits
may be sold and bought among manufacturers. CAFE credits for the manufacture of
flexible-fueled vehicles (FFV) were retained by EISA, but will be phased out by
MY2020. Civil penalties assessed for non-compliance will be deposited to the
general fund of the U.S. Treasury to support future rulemaking and to provide grants
to U.S. manufacturers for research and development, and retooling in support of
increasing fuel efficiency. The law also requires the development of standards for
“work trucks” and commercial medium- and heavy-duty on-highway vehicles.
An important development having a bearing on CAFE was the denial in late
December 2007 of a waiver to the state of California by the Environmental Protection
Agency that would have permitted California (and other interested states) to set
vehicle greenhouse gas standards under the Clean Air Act. Reducing fuel
consumption could be one of the major tools for reducing vehicle emissions. A
waiver would allow these states to require more stringent fuel economy of vehicles
sold in those states than required by the new standards established by EISA. Some

CRS-2
have suggested that language in the NOPR pre-empting states from regulating
tailpipe emissions would be challenged in court if included in any final rule.
A November 15, 2007, decision by the U.S. Court of Appeals for the Ninth
Circuit overturned a final rule issued by NHTSA for MY2008-MY2011 for light
trucks. The Court ruled that NHTSA had not conducted a sufficiently rigorous
analysis to measure whether the standards would have a beneficial effect in
improving environmental quality through reduction of greenhouse gas emissions.
The analysis accompanying the NOPR for MY2011-MY2015 appears intended to
address the deficiencies identified by the Court in the earlier rulemaking. Whether,
if challenged, the Court would find it sufficient, is uncertain. At this point, there
would be no reason for NHTSA to resubmit its light truck rule for MY2008-
MY2011.
Current CAFE Standards
The Arab oil embargo of 1973-1974 and the subsequent tripling in the price of
crude oil brought into sharp focus the fuel inefficiency of U.S. automobiles. New car
fleet fuel economy had declined from 14.8 mpg in MY1967 to 12.9 mpg in MY1974.
In the search for ways to reduce dependence on imported oil, automobiles were an
obvious target. The Energy Policy and Conservation Act (EPCA) established CAFE
standards for passenger cars for MY1978. The CAFE standards called for an eventual
doubling in new car fleet fuel economy. EPCA also granted NHTSA the authority
to establish CAFE standards for other classes of vehicles, including light-duty
trucks.1 NHTSA established fuel economy standards for light trucks, beginning in
MY1979. For passenger cars, the current standard is 27.5 mpg. For light trucks, the
standard was set at 22.2 mpg for MY2007. The CAFE standards to MY2011 are
summarized in Table 2.
As noted, on April 6, 2006, NHTSA issued additional rules to further increase
light truck fuel economy through MY2011, a rule that was remanded to NHTSA. The
MY2008-MY2011 light truck fuel economy standards shown in the table below are
included for informational purposes to show the path of the interim standards that
were proposed by NHTSA. Given the remanding of the rule, the standard of 22.2
mpg for light duty trucks prevails until raised by a final (and unchallenged) rule.
1 Light-duty trucks include most sport utility vehicles (SUVs), vans, and pickup trucks.

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Table 1. Fuel Economy Standards for Passenger Cars and
Light Trucks: Model Years 2000 Through 2011
(miles per gallon)
Passenger
Light
Model year
cars
trucksa
2000
b27.5
20.7
2001
b27.5
20.7
2002
b27.5
20.7
2003
b27.5
20.7
2004
b27.5
20.7
2005
b27.5
21.0
2006
b27.5
21.6
2007
b27.5
22.2
2008
b27.5
22.2/c22.5
2009
b27.5
22.2/c23.1
2010
b27.5
22.2/c23.5
2011
b27.5
22.2/d24.0
Source: Automotive Fuel Economy Program, Annual Update, Calendar Year 2001; U.S. Department
of Transportation. National Highway Traffic Safety Administration, Light Truck Average Fuel
Economy Standard, Model Year 2004, Final Rule; and U.S. Department of Transportation, National
Highway Traffic Safety Administration. Average Fuel Economy Standards for Light Trucks Model
Years 2008-2011, Final Rule (remanded to NHTSA in December 2007).
a. Standards for MY1979 light trucks were established for vehicles with a gross vehicle weight rating
(GVWR) of 6,000 pounds or less. Standards for MY1980 to MY2000 are for light trucks with
a GVWR of 8,500 pounds or less. Starting in MY2011, the light truck CAFE program will
include medium duty passenger vehicles (MDPVs), trucks with a GVWR between 8,500 and
10,000 pounds that primarily transport passengers (e.g., large SUVs, passenger vans).
b. Established by Congress in Title V of the act.
c. Unreformed CAFE standard. These are standards that were part of the MY2008-MY2011 NHTSA
rule that was remanded back to the agency to be redone.
d. Average that was estimated by NHTSA in the proposed rule, based on MY2011 reformed standard.
Compliance with the standards is measured by calculating a sales-weighted
mean of the fuel economies of a given manufacturer’s product line, with domestically
produced and imported cars measured separately. The penalty for non-compliance
is $5.50 for every 0.1 mpg below the standard, multiplied by the number of cars in
the manufacturer’s new car fleet for that year. Civil penalties collected from 1983
to 2003 totaled slightly more than $600 million. However, these penalties have been
paid mostly by small and speciality European manufacturers, not by the major U.S.
or Japanese automotive manufacturers.
The effectiveness of CAFE standards since inception has been controversial.
Since 1974, domestic new car fuel economy has roughly doubled; the fuel economy
of imports has increased by roughly one-third. Some argue that these improvements
would have happened as a consequence of rising oil prices during the 1970s and
1980s regardless of the existence of the CAFE standards. Some studies suggested
that the majority of the gains in passenger car fuel economy during the 1970s and

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1980s were technical achievements, rather than the consequence of consumers’
favoring smaller cars. Between 1976 and 1989, roughly 70% of the improvement in
fuel economy was the result of weight reduction, improvements in transmissions and
aerodynamics, wider use of front-wheel drive, and use of fuel-injection. The fact that
overall passenger car fleet fuel economy remained comparatively flat during a period
of declining real prices for gasoline also suggested that the CAFE program may have
contributed to placing some sort of floor under new-car fuel economy. Recent and
historic fleet fuel economy averages are shown in Figure 1.
Figure 1. Passenger Car and Light Truck Fuel Economy Averages
for Model Years 1978-2006
(miles per gallon)
35
30
25
20
15
1978
1982
1986
1990
1994
1998
2002
2006
Combined
Passenger Automobiles
Light Trucks
Source: U.S. Department of Transportation, National Highway Traffic Safety Administration,
Summary of Fuel Economy Performance, March 2007.
Major Issues in the CAFE Debate
Some of the arguments made on behalf of, or in opposition to, raising CAFE or
making significant changes in the program touched on long-standing themes that are
also complex. These issues include:
! What is the effect of combining the passenger automobile and
light-duty truck fleet for the purpose of calculating
manufacturers’ average CAFE? During the congressional debate,
some contended that it should make no difference whether the
average is calculated across one entire fleet or weighted across two

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if an umbrella standard has to be met for the entire fleet. On the
other hand, had the classes been kept separate, there might be
differential effects of the standards on different vehicle classes.
Opponents of eliminating the distinction between the fleets referred
to that policy as “backsliding.” Under the CAFE program prior to
the enactment of EISA, a manufacturer was required to meet the
CAFE standard separately for its fleet of passenger cars produced in
the United States and abroad. The CAFE of each could not be
averaged across one another. A manufacturer could not earn CAFE
credits for one fleet that could be applied to bring its other fleet into
compliance, nor could manufacturers buy and sell credits from one
another. The two-fleet rule had been crafted originally to protect the
diversity of models manufactured in the United States. The United
Auto Workers (UAW) argued that eliminating the distinction
between foreign and domestic fleets could cost jobs in the industry
domestically. The final bill retained the distinction between the two
vehicle classes. The presumption is that this will place greater
weight for fuel economy improvement on passenger cars than on
light trucks.

! Will higher CAFE standards bring about a loss in jobs? Some
argued that higher standards might compel manufacturers to make
fewer vehicles that consumers want; as a result, older, less efficient
vehicles might be retained longer. Others suggested that any impact
on jobs in the industry would be selective — that is, unionized jobs
might be more vulnerable if higher standards do affect demand for
vehicles.
! What might be the effects of allowing credit trading among
manufacturers and/or between passenger car and light trucks
fleets? Under the previous structure of the CAFE program,
automakers could bank excess CAFE credits for use in future years,
but could not trade those credits with other automakers.
Manufacturers also could not trade credits between their passenger
car and light truck fleets — each fleet had to meet the standards
independently. Under the fuel economy program restructure by
EISA, credit trading is allowed. Supporters of this approach argued
that it may improve the economic efficiency of the system and lower
the cost of compliance. Opponents raised the possibility that
allowing credit trading could lead to a competitive advantage for
some manufacturers, and could affect auto industry employment.
! Do higher CAFE standards have an effect on gasoline price?
There are many external and often short-term and cyclical variables
that can affect gasoline prices. If higher standards do reduce overall
oil demand from a baseline projection, world oil prices may be less
volatile when an incident or sequence of events raises uncertainty
about the adequacy and security of world supply. However, it is
impossible to make any reliable projections given such a large
universe of possible scenarios.

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! How do attribute-based standards work, and what are the
advantages and disadvantages of them? Any system for regulating
CAFE will have winners and losers, whether an attribute-based
system, or the previous straight-line average. Additionally, the
choice of which attribute or attributes on which to base CAFE will
also affect individual automakers differently. Under the new system,
NHTSA will set a fuel economy target calculated for each new car
as a mathematical function of individual vehicle attributes. The final
regulations developed by NHTSA may, for example, base standards
on vehicle size — or footprint. Under that scenario — and
visualized on a graph — each year’s standard would no longer be
represented by a single line, but appear instead as a curve that would
peg a desirable fuel economy target for vehicles based upon their
footprint. In successive model years, the curve would be replotted,
with the intention of reaching a designated CAFE fleetwide average
in some future model year. No individual vehicle would be required
to meet a specific fuel economy standard, but the average of the fleet
would need to meet or exceed the average of the individual vehicles’
size-based targets. (See Figure 2 in the detailed discussion below.)
! Are there arguments to be made for and against designating
CAFE standards as an expression of both miles per gallon and
as grams per mile of CO emissions? One bill (H.R. 2927)
2
included such a provision. Technically, CO emission rates are not
2
measures of fuel economy but of greenhouse gas emissions.
However, there may be few ways to reduce emissions other than
increased fuel economy. Currently, states may establish emissions
standards under the Clean Air Act, but are preempted from setting
fuel economy standards by the Energy Policy and Conservation Act
(EPCA). Amending EPCA to establish CAFE standards both in
terms of miles per gallon and grams per mile of CO could have a
2
bearing on states’ authority to regulate CO . On April 2, 2007, the
2
Supreme Court issued its ruling in a case (Commonwealth of
Massachusetts v. EPA) brought by 12 states and the District of
Columbia that challenged the Environmental Protection Agency’s
(EPA) decision not to regulate greenhouse gas emissions from
automobiles. The Supreme Court decision upheld the petition and
requires EPA to regulate CO emissions.2 A ruling of the U.S. Court
2
of Appeals for the Ninth Circuit overturning the final rule
promulgated in April 2006 setting light truck fuel economy
standards for MY2008-MY2011 was based, in part, on a
determination that NHTSA failed to thoroughly analyze the effect of
the final rule on CO .
2
2 See additional discussion later in this report, “CAFE and Reduction of Carbon Dioxide
Emissions.”

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How the Interim Rule for MY2011-MY2015
Would Work
Overview of the Rule
On April 22, 2008, NHTSA released a Notice of Proposed Rulemaking
(NOPR) that would establish fuel economy standards for model year MY2011-
MY2015 passenger cars and light trucks. Under the rule, cars and light trucks would
have a fuel economy “target” based on a specific vehicle’s “footprint” (the product
of wheelbase and track width), with higher targets for smaller vehicles and lower
targets for larger vehicles. For a given model year, the targets for a manufacturer’s
fleet would be averaged to calculate that manufacturer’s mandated fuel economy.
The agency’s estimate of costs, benefits and net benefits from the proposed rule
are shown in Table 3. The agency estimates that the total benefits of the proposed
passenger care rule would be roughly $31 billion over the lifetime of the 5 model
years. “Societal benefits,” the agency notes, includes “direct impacts from lower fuel
consumption as well as externalities such as reduction of air pollutants and
greenhouse gases.”3 After netting out the $15.8 billion cost of the rule, the net
societal benefit is estimated at $15.1 billion from the improvement in passenger car
fuel economy.
For the proposed light truck standard, the table shows $57.3 billion in gross
benefits, nearly $31 billion in costs, and a net societal benefit of $26.4 billion. For
both classes of vehicles, the greatest percentage of benefits — an estimated 84-85%
percent — is projected to accrue to consumers. The 15-16 percent balance of benefits
is attributed to environmental benefits, and a reduction in oil imports.
However, it’s important to note that the agency calculations assume a lower
gasoline price — of $2.26 to $2.51 per gallon — than was being observed when the
NOPR was released.4
3 U.S. Department of Transportation. National Highway Traffic Safety Administration.
Average Fuel Economy Standards Passenger Cars and Light Trucks Model Years
2011-2015. [Docket No. NHTSA-2008 -0089], p. 289.
4 Ibid., p. 290.

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Table 2. NHTSA-Estimated Societal Benefits and Costs From
Proposed CAFE Rule
Passenger Cars
Model Year
Total
2011
2012
2013
2014
2015
2011-2015
Benefits
2,596
4,933
6,148
7,889
9,420
30,986
Costs
1,884
2,373
2,879
3,798
4,862
15,796
Net Benefits
712
2,560
3,269
4,091
4,558
15,190
Light Trucks
Model Year
Total
2011
2012
2013
2014
2015
2011-2015
Benefits
3,909
8,779
13,560
14,915
16,192
57,355
Costs
1,649
4,986
7,394
8,160
8,761
30,949
Net Benefits
2,260
3,793
6,166
6,755
7,431
26,406
Source: U.S. Department of Transportation. National Highway Traffic Safety Administration.
Average Fuel Economy Standards Passenger Cars and Light Trucks Model Years 2011-2015. [Docket
No. NHTSA-2008 -0089] p. 292.
To date, the CAFE standards have not applied to vehicles over 8,500 pounds
GVW. Vehicles between 8,500-10,000 pounds GVW, which are categorized as
medium-duty passenger vehicles (MDPV) would be included under the proposed
rule, beginning in MY2011. Before MY2004, these vehicles were considered heavy-
duty vehicles for both fuel economy and emissions purposes. For the purposes of
emissions standards, starting in MY2004, the Environmental Protection Agency
(EPA) first defined MDPVs and included them in the “Tier 2” emissions standards
for passenger cars and light trucks. The justification at the time was that these
vehicles are used primarily as passenger vehicles, and should be regulated as such.
NHTSA reached a similar conclusion, adding that fuel economy standards for
MDPVs were feasible, and that standards would save additional fuel —
approximately 250 million gallons over the operating life of MY2011 MDPVs.
Under the proposed rule, work trucks (such as long-bed pickups and cargo
vans), and trucks described as “multi-stage,” (built in stages by more than one
manufacturer) would be excepted from regulation.5 Work trucks may subsequently
5 Under the provisions of EPCA, NHTSA has had the authority to regulate the fuel economy
of vehicles up to a gross vehicle weight (GVW) of 10,000 pounds if, after study, it was
determined that it was feasible to set standards for these vehicles, and if there was evidence
that the vehicles were used for the same purposes as passenger automobiles, and that
including them under CAFE regulation would save a significant amount of fuel. In EISA,
Congress directed that vehicles up to 10,000 pounds be subject to CAFE standards,
eliminating the need for any administrative determination that there were grounds to include
(continued...)

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come under CAFE regulation, but EISA directed first that the National Academy of
Sciences conduct a study on the feasibility of including work trucks, with NHTSA
to conduct a subsequent evaluation of its own.
Reformed Standards
Prior to the passage of EISA, one of the key criticisms of the CAFE structure
was that increased CAFE standards promoted smaller, lighter vehicles because fuel
economy tends to decrease as vehicles get heavier. The concern was that fuel
economy standards would be met to a great degree by decreasing vehicle weight.
Because larger vehicles tend to offer greater passenger protection in accidents, and
tend to be heavier, a fuel economy program structure that does not factor vehicle size
into the setting of CAFE standards could promote the use of smaller, less safe
vehicles. A corollary and further criticism of the program was that it favored
producers of smaller vehicles that would tend to be more fuel efficient. Some
proponents of higher CAFE standards responded by arguing that, through the use of
new technology, vehicle efficiency can be improved without affecting size or
performance.
Under the proposed rule, fuel economy targets vary with vehicle size, with
smaller vehicles required to achieve higher fuel economy than larger vehicles. Under
the system in the proposed rule, each vehicle would be assigned a fuel economy
“target” based on its footprint, which is the product of a vehicle’s track width (the
horizontal distance between the tires) and its wheelbase (the distance from the front
to the rear axles). The average of the targets for a manufacturer’s fleet is the CAFE
average that the manufacturer must achieve in a given model year. In this way, no
specific vehicle is required to meet a specific fuel economy, but the average fuel
economy required will vary from manufacturer to manufacturer.
The Challenge to the Rule and Court Decision
As noted earlier, a November 15, 2007, decision by the U.S. Court of Appeals
for the Ninth Circuit overturned a final rule issued by NHTSA in April 2006
establishing fuel economy standards for light trucks, MY2008-MY2011. The Court
ruled that NHTSA had not conducted a sufficiently rigorous analysis to measure
whether the standards would have a beneficial effect in improving environmental
quality through reduction of greenhouse gas emissions.
Eleven states, the District of Columbia, New York City, and four public interest
organizations had petitioned for review of the final rule governing light truck fuel
economy for MY2008-MY2011. In its decision, the Court ruled that NHTSA would
have to promulgate a new rule that, among other elements, assessed the costs and
benefits from different levels of standards in reducing carbon dioxide (CO )
2
emissions. Among the petitioners’ arguments were that the cost-benefit analysis
performed by NHTSA assigned no benefit to reducing CO emissions, and that the
2
5 (...continued)
them.

CRS-10
rule did not establish a floor fuel economy that an individual manufacturer had to
achieve in a given model year.

At this point, there would be no reason for NHTSA to resubmit its rule for
MY2008-MY2011 because there is insufficient advance notice to the manufacturers,
whose product lines are planned well in advance of their introduction. The analysis
accompanying the NOPR for MY2011-MY2015 appears intended to address the
deficiencies identified by the Court in the earlier rulemaking. Whether, if challenged,
the Court would find it sufficient is uncertain.
However, there is some prospect of a challenge should NHTSA issue a final rule
that maintains, as is expressed in the NOPR, that any state regulation that affects fuel
economy, including any state regulation governing tailpipe emissions, is forbidden
by EPCA. The text of the NOPR observes (with emphasis added):
For those rulemaking actions undertaken at an agency’s discretion, agencies [are
instructed] to closely examine their statutory authority supporting any action that
would limit the policymaking discretion of the States and assess the necessity for
such action. This is not such a rulemaking action. NHTSA has no discretion not
to issue the CAFE standards proposed in this document. EPCA mandates that the
issuance of CAFE standards for passenger cars and light trucks for model years
2011-2015. Given that a State regulation for tailpipe emissions of CO2 is the
functional equivalent of a CAFE standard, there is no way that NHTSA can tailor
a fuel economy standard so as to avoid preemption. Further, EPCA itself
precludes a State from adopting or enforcing a law or regulation related to fuel
economy (49 U.S.C. 32919(a)).6

CAFE and Reduction of Carbon Dioxide Emissions:
Additional History and Discussion
Carbon dioxide emissions clearly figured into the challenge and ruling on the
NHTSA MY2008-MY2011 light truck fuel economy rulemaking. Mobile sources are
a key source of greenhouse gas (GHG) emissions in the United States.
Transportation accounts for roughly one-third of all U.S. carbon dioxide (CO )
2
emissions. Passenger vehicles alone represent roughly 60% of transportation
emissions, or roughly 20% of total U.S. CO emissions. Because passenger vehicles
2
play such a significant role in U.S. GHG emissions, there is growing interest in
reducing their emissions as part of a strategy to address climate change concerns.
In general, there are three ways to reduce vehicle greenhouse gas emissions.
These choices are to: (1) reduce vehicle miles traveled (through strategies such as
carpooling, transit, or teleworking); (2) reduce vehicle per-mile fuel consumption
6 U.S. Department of Transportation. National Highway Traffic Safety Administration.
Average Fuel Economy Standards. Passenger Cars and Light Trucks Model Years
2011-2015, p. 378-379. [Docket No. NHTSA-2008 -0089]

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(through improved fuel economy) and per-mile non-carbon emissions7 (through
improvements in vehicle systems); and (3) convert to lower-carbon transportation
fuels. As a consequence, there is likelihood that any program to reduce GHG
emissions will likely raise fuel economy. Conversely, any program to increase fuel
economy will lower GHG emissions.
There is some debate whether raising the CAFE standards would be an effective
or marginal way to reduce emissions of carbon dioxide. On one hand, improvements
in fuel economy should enable the same vehicle to burn less fuel to travel a given
distance. However, to the extent that technologies to improve fuel economy add cost
to new vehicles, it has been argued that consumers will tend to retain older, less
efficient cars longer. Further, improving fuel economy lowers the per-mile cost of
driving. To the extent that fuel savings are reduced by additional driving, the
reduction in greenhouse gas emissions will also be offset some. This is what is
referred to as the “rebound effect.”
Perhaps the most significant current issue regarding automotive fuel economy
has its origins in the 2002 decision by the state of California to require carbon
dioxide emissions standards for passenger cars and light trucks. Legislation passed
by the state legislature that year, A.B. 1498, requires the state to promulgate
regulations to achieve the maximum feasible and cost-effective reduction of
greenhouse gases from cars and trucks. The regulations, adopted by the California
Air Resources Board on September 24, 2004, require a reduction of greenhouse gas
emissions of 30% by 2016. The regulation covers passenger vehicles, but would not
affect heavier vehicles such as commercial trucks or buses.
Although states do not have authority to regulate fuel economy, under the Clean
Air Act California solely may be granted an exemption from restrictions on setting
vehicle pollutant emissions standards — subject to the state filing a petition with the
Environmental Protection Agency (EPA) and being granted a waiver by that agency.
Any state-established standards must be at least as stringent as the federal standards,
and as long as they are needed to meet “compelling and extraordinary conditions.”8
While only California can petition for a waiver, other states may adopt any California
standards that are put into place following the granting of the waiver.
Several auto manufacturers and dealers challenged the California auto
greenhouse gas standard in court. (Central Valley Chrysler-Jeep, Inc., vs.
Witherspoon, No. 1:04-CV-06663, E.D. Cal., filed December 7, 2004.) The plaintiffs
argued that California lacks the authority to establish standards that are almost certain
to bear on vehicle fuel economy requirements, and that greenhouse gases are not a
pollutant under the Clean Air Act. California officials maintain that they have the
authority under the Clean Air Act to regulate vehicle greenhouse gas emissions. The
state estimates that complying with the standard could cost $1,000 per vehicle by
2016, while opponents argue that costs could be as much as $3,000 per vehicle.
Depending upon the cost of compliance, the new standards could reduce demand for
7 E.g., fluorinated gas emissions from air conditioner systems.
8 For more information on the Clean Air Act waiver process, see CRS Report RL34099,
California’s Waiver Request to Control Greenhouse Gases Under the Clean Air Act.

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new vehicles. The impact of the standards on manufacturers would likely vary
depending upon the mix of vehicles they offer. In early 2007, the Court indicated
that it would withhold a decision, pending resolution by the Supreme Court of a case
that might bear on the one before the Court.
On April 2, 2007, the Supreme Court issued its ruling on that related case
(Commonwealth of Massachusetts v. EPA). In that case, 12 states and the District of
Columbia challenged EPA’s decision not to regulate greenhouse gas emissions from
automobiles, arguing that EPA has the responsibility to set greenhouse gas standards
for passenger vehicles. Under that decision, EPA is required to establish greenhouse
gas standards for automobiles or explicitly justify why such standards are not
“justified.” The decision in that case will likely affect the outcome of the case against
California.9
On December 11, 2007, the United States District Court for the Eastern District
of California ruled that both EPA and California, through the waiver process, are
“equally empowered” to regulate GHG, and that preemption of state laws regulating
fuel economy did not preempt the proposed California standard to reduce GHG.
Then, on December 19, 2007, EPA Administrator Stephen Johnson sent a letter to
California Governor Arnold Schwarzenegger informing him of EPA’s plan to deny
California’s waiver request. Without this waiver, California’s program cannot move
forward.
EPA’s rationale appeared to consist of two arguments: first, that California has
not shown that its regulations are needed to meet compelling and extraordinary
conditions, as required by the Clean Air Act; and second, that the Administration and
Congress are addressing climate change through national standards. Specific
reference was made to the newly enacted CAFE standards in EISA as addressing
vehicle emissions. Officials in California were not satisfied by the agency
explanation for its decision. On January 2, 2008, California (along with 15 other
states) filed a suit against EPA in the U.S. Court of Appeals, 9th Circuit, challenging
EPA’s rejection of the petition.
Overview of Congressional Interest in CAFE
(1991-2005)
Significant efforts to raise CAFE began in the early 1990s and were highly
controversial. One proposal included in omnibus energy legislation was so
controversial that it contributed to an insufficient number of votes in the Senate in
1991 to bring the bill up for debate on the floor. A general criticisms of raising the
CAFE standards was that, owing to the significant lead times manufacturers need to
change model lines and because of the roughly ten years it generally takes for the
vehicle fleet to turn over, increasing CAFE is a slow and inefficient means of
achieving reductions in fuel consumption. Further, it was argued that the standards
9 For additional background, see CRS Report RL32764, Climate Change Litigation: A
Growing Phenomenon, by Robert Meltz.

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risked interfering with consumer choice and jeopardizing the economic well-being
of the automotive industry. Opponents of raising CAFE have often cited a concern
that higher efficiency will likely be obtained by decreasing vehicle size and weight,
jeopardizing vehicle safety. Proponents of CAFE increases have argued that boosting
the standards could bring about the introduction of technological improvements that
would not compromise features that consumers value, but which would otherwise not
be added because of the increase in vehicle cost stemming from these improvements.
Language in the FY1996-FY2000 Department of Transportation (DOT)
Appropriations prohibited expenditures for any rulemaking that would make any
adjustment to the CAFE standards. In conference on the FY2001 appropriations, the
Senate insisted that the language be dropped, opening the way for NHTSA to initiate
rulemakings once again. The conferees also agreed to authorize a study of CAFE by
the National Academy of Sciences (NAS) in conjunction with DOT. That study,
Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,
released on July 30, 2001, concluded that it was possible to achieve more than a 40%
improvement in light truck and SUV fuel economy over a 10- to 15-year period at
costs that would be recoverable over the lifetime of vehicle ownership. A study
released in December 2004 by the National Commission on Energy Policy, Ending
the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges,
established by foundation money, recommended that Congress instruct NHTSA to
raise CAFE standards over a five-year period beginning not later than 2010. The
commission recommended that manufacturers be able to trade fuel economy credits
earned by exceeding the standards.
A draft report from the National Petroleum Council, “Facing the Hard Truths
About Energy: A Comprehensive Review to 2030 of Global Oil and Gas,” released
in late July 2007 argued that vehicle fuel efficiency could be doubled by 2030
“through the use of existing and anticipated technologies,” and “assuming vehicle
performance and other attributes remains the same as today.” The draft report noted
that technologies to improve fuel efficiency had been used to compensate for the
addition of horsepower and other “amenities” to current vehicles. The Council
estimated that doubling fuel economy could achieve a savings of 3-5 million barrels
a day by 2030.10
The Energy Policy Act of 2005 (P.L. 109-58) authorized $3.5 million annually
during FY2006-FY2010 for NHTSA to carry out fuel economy rulemakings. It also
required a study (submitted to Congress in August 2006) to explore the feasibility
and effects of a significant reduction in fuel consumption by 2014, and required that
the estimated in-use fuel economy posted to the window of new vehicles more
closely approximate owners’ experience.
In August 2006, NHTSA issued to Congress the report “Study of Feasibility and
Effects of Reducing Use of Fuel for Automobiles.” The report concluded that
NHTSA’s light truck rulemaking will lead to significant reductions in fuel
10 National Petroleum Council. Facing the Hard Truths about Energy, p. 86-87. The text of
the report is currently available at [http://www.npc.org].

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consumption, and that granting NHTSA the authority to establish similar rules for
passenger cars would lead to even greater reductions.
In-Use Fuel Economy Estimates
The fuel economy of individual vehicles is calculated by running vehicles
through a test on a dynamometer intended to simulate a driving cycle that assumes
11 miles driven in an urban setting and 10 miles on open highway. To bring this
calculation more into line with in-use fuel economy experienced by drivers, the EPA
makes a downward adjustment of 10% for the city portion of the cycle and 22% for
the highway portion. However, many argued in the past that this adjustment was no
longer sufficient, and that the gap between estimated fuel economy and actual in-use
fuel economy had widened significantly.
EPACT required a revision of the adjustment factor applied against tested
vehicle fuel economy to estimate consumer in-use fuel economy. On December 11,
2006, EPA finalized a rule to incorporate the effect of factors such as higher speed
limits, faster acceleration, differences in the ratio between city and highway driving,
and use of air conditioning on in-use fuel economy. The in-use fuel economy
stickers posted to the windows of new cars will reflect the results of these tests
beginning in MY2008.11 The change affects only the estimation of in-use fuel
economy. It does not affect the CAFE calculation for purposes of determining
manufacturers’ compliance with the CAFE standard.
For Additional Reading
National Petroleum Council. Facing the Hard Truths about Energy (2007).
National Research Council. Committee on the Effectiveness and Impact of Corporate
Average Fuel Economy Standards. Effectiveness and Impact of Corporate
Average Fuel Economy (CAFE) Standards. Washington, D.C., National
Academy Press, 2001. 166 p.
Greene, D.L., P.D. Patterson, M. Sing and J. Li. (2004). “Feebates, Rebates and
Gas-Guzzler Taxes: A Study of Incentives for Increased Fuel Economy,”
Energy Policy, vol. 33, no. 6, pp. 721-827, June 2004.
U.S. Congressional Budget Office. Reducing Gasoline Consumption: Three Policy
Options. November 2002. 36 p.
U.S. Congressional Budget Office. The Economic Costs of Fuel Economy Standards
Versus A Gasoline Tax. December 2003. 37 p.
11 For more information, see U.S. Environmental Protection Agency (EPA), Regulatory Fact
Sheet: EPA Issues New Test Methods for Fuel Economy Window Stickers, December 2006.

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U.S. Environmental Protection Agency. Fuel Economy Labeling of Motor Vehicles:
Revisions To Improve Calculation of Fuel Economy Estimates. 71 Federal
Register 77871. December 27, 2006.
U.S. Department of Transportation. National Highway Traffic Safety Administration.
Average Fuel Economy Standards. Passenger Cars and Light Trucks Model
Years 2011-2015, p. 378-379. [Docket No. NHTSA-2008-0089]
U.S. Department of Transportation. National Highway Traffic Safety
Administration. Light Truck Average Fuel Economy Standards, Model Years
2005-2007. 68 FR 16867; April 7, 2003.
U.S. Department of Transportation. National Highway Traffic Safety
Administration. Automotive Fuel Economy Program. Annual Update,
Calendar Year 2004. [http://www.nhtsa.dot.gov/staticfiles/DOT/
NHTSA/Vehicle%20Safety/CAFE/2004_Fuel_Economy_Program.pdf]
U.S. Federal Register. Department of Transportation. National Highway Traffic
Safety Administration. Average Fuel Economy Standards for Light Trucks
Model Years 2008-2011. Final Rule. Vol. 71, No. 66. Thursday, April 6, 2006,
pp. 17566-17679. [http://www.nhtsa.dot.gov/staticfiles/DOT/NHTSA/
Rulemaking/Rules/Associated%20Files/2006FinalRule.pdf]
United States Court of Appeals, Ninth Circuit. Center for Biological Diversity vs.
National Highway Traffic Safety Administration. Argued and Submitted August
14. 2007. Filed November 15, 2007. See [http://www.altlaw.org/v1/cases/
218574.pdf].