The CAFE Numbers Game: Making Sense of the New Fuel-Economy Regulations

It was less than two years ago that the Obama administration implemented new Corporate Average Fuel Economy (CAFE) regulations that boosted the auto industry’s mandatory overall fleet mpg from 25.3 in 2010 to 34.1 by 2016. This was, by far, the biggest CAFE increase in decades. But now the administration is pushing the standards even higher.

In July, President Obama announced a proposal to raise the auto industry’s mpg requirement to 54.5 by 2025. That’s a 59-percent increase over the 2016 bogey and basically double—99 percent higher than—the current 2011 standard of 27.3 mpg.

As with the 2012–16 rules, this new proposal is devilishly complicated and bristling with incentives that favor certain technologies and penalize others. But here are a few key items to keep in mind:

First, like the current 2012–16 rules, these new standards are size based. That means there’s a formula to calculate the required CAFE—within limits—for each car based on its “footprint,” which is the product of its wheelbase and track dimensions. In 2011, for example, the required CAFE mpg for the smallest car would not exceed 31.2, while even the largest car was assigned at least 24 mpg. For 2025, these car limits go up to 61.1 and 45.6. Truck mpg is calculated in similar fashion using a different formula. For 2011, the truck mpg ranged from 21.1 to 27.1. In the 2025 proposal, it spans 30.2 to 50.4 mpg. Notice that the formula has been adjusted so that the low end of the range rises less than the high end to help accommodate large trucks.

Second, because these CAFE requirements are based on size, every car company actually ends up with a different CAFE requirement, depending on the mix and size of cars and trucks that it actually sells. For every model year, each company must calculate the CAFE requirement for all models it markets and then determine the sales-weighted average for its actual mix. Therefore, a company such as General Motors, with its heavy share of large pickups and SUVs, will have a lower CAFE requirement than Suzuki, which primarily produces smallish cars and SUVs.

Third, CAFE mpg is very different from the fuel-economy-label mpg numbers on every new car. That’s because the CAFE figures are based on the original city and highway fuel-economy tests established in the Seventies, while the window-sticker numbers combine those values, along with the results of three other emissions tests, to produce mpg figures that better-match real-world driving. In general, the combined mpg on a vehicle’s label is about 20 percent lower than the CAFE mpg.

Hidden within this web of rules are a number of subtleties. For example, the nominal 54.5-mpg requirement represents a certain reduction in the tailpipe emissions of carbon dioxide. The actual mpg requirement will be more like 49.6, with the rest of the greenhouse-gas reduction coming from a change to higher-efficiency air-conditioning systems using more environmentally friendly refrigerant.

The manufacturers will also get mpg credits for adopting efficient technologies that often show no effect on the official test cycles. These include active grille shutters, electric heat pumps, stop-start systems, high-efficiency lights, and solar roof panels. The credit for such items could amount to about 3 mpg if several are used or even more if a manufacturer provides data to justify it.

Then there’s extra credit for electric, plug-in hybrid, and fuel-cell vehicles. These machines already garner very high CAFE ratings, as they use little or no gasoline, but to encourage their sales, the government will factor each sale of an electric vehicle by 2.0 in model year 2017. In other words, if you sell 10,000 electric vehicles—either battery powered or fuel cell—they will be counted as 20,000 when calculating that company’s fleet fuel economy. This factor will phase down to a multiplier of 1.5 by 2021. For plug-in hybrids, the factor will start at 1.6 in 2017 and phase down to 1.3 in 2021.

Recognizing that full-size pickups have been slow to adopt hybrid technology, there will be separate incentives for “mild” and “strong” hybrid trucks if they are sold in sufficient quantity. There will also be credit for natural-gas–powered vehicles to match their reduction in greenhouse gases. Conversely, for CAFE purposes, oil burners are not penalized for the higher carbon content of diesel fuel.

Ethanol continues to lose favor, and flexible-fuel vehicles will only receive extra credit when manufacturers present data proving how much E85 such vehicles actually burn in real-world driving. In most cases, that amounts to little or none, so sell your Iowa farmland now.

California, which usually goes its own way in matters environmental, has signed on to this new program, which eliminates the specter of carmakers having to certify, build, sell, and tabulate separate fuel-economy fleets for the Left Coast state. That’s probably one reason why most car companies are not objecting to this new proposal.

Another one is the promise of a midterm evaluation of the program in the 2018 time frame about whether the 2022–25 aspects of this plan remain technically feasible, cost-effective, and saleable. In the unlikely chance that gasoline prices drop back below $2.00 per gallon and customers go back to buying corpulent vehicles, there will be an opportunity for a rethink.

But even with these caveats, this plan presents major challenges to auto­makers. The chart above provides an idea of what the future fuel-economy landscape might look like. We show the ­target CAFE requirements for 15 vehicles from today through 2025.

As you’d expect, most of the current models are generally at their CAFE requirements [shown in green], plus or minus an mpg or two. Small cars are actually well above their required CAFE numbers, which offsets the large and high-performance cars that are not meeting their CAFE requirements [shown in blue].

But going forward, the chart turns blue very quickly for just about all classes of vehicles based on today’s fuel-economy performance. Even the smallest and most efficient cars struggle as their CAFE bogey skyrockets about 10 mpg every five years.

Among current cars, only the Toyota Prius—and similar smallish full hybrids—can meet the projected 2025 standards. Efficient, modern, mainstream sedans such as the Hyundai Sonata will need to improve their fuel efficiency by about 50 percent by the end of the program. And it’s hard to see how a Mercedes-Benz S-class will get close to its 2025 CAFE target of 46.7 mpg, when even today’s S400 hybrid rates a mere 27.5 mpg.

Even allowing for the breaks provided by counting some of the off-cycle efficiency improvements and multiple counting of electrified cars, meeting these 2025 targets will require radical change in our vehicles. A few more transmission gears and smaller-displacement turbocharged engines just aren’t going to cut it.

If these standards remain in place, expect to see some degree of? hybridization eventually spread through at least half of the fleet. Even though the regulations are footprint based, the formulas still encourage some downsizing, and we’d expect to see some of that as well. Finally, when it comes to large luxury cars, weight savings will be a must. Expect the S-class of the future to be constructed largely of aluminum, with enhanced weight savings coming from carbon-fiber parts such as hoods, trunklids and roof panels. Or it might be as radical as the Mercedes F125 concept.

In the end, there’s little question that the technology exists—or can be developed—to meet these standards. But even more certain is that such technology will make 2025 vehicles far more costly than today’s cars and trucks. Whether the increment will be tabulated using four- or five-digit numbers remains to be seen.

Mercedes-Benz F125 concept

Posted in: FuelEconomy,Making,Numbers,Regulations,Sense