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Analysis of Corporate Average Fuel Economy (CAFE) Standards for Light Trucks and Increased Alternative Fuel Use |
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AEO2002 Revised Reference Case The AEO2002 Revised Reference Case represents a modified version of the AEO2002 Reference Case. The modifications made for this case are limited to advanced conventional technologies used in the evaluation of fuel economy improvement. The National Energy Modeling System (NEMS) evaluates a menu of fifty-two advanced conventional engine technologies for improvement of conventional vehicle performance and/or fuel economy over the projection period.12 Performance is defined as a vehicle’s horsepower to weight ratio. Due to increasing consumer demand for heavier vehicles, much of the advanced technology adopted in the past has been utilized to increase horsepower so that performance is enhanced while maintaining vehicle fuel economy. The findings reported in Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards13 by the National Research Council and concerns regarding the ability of certain advanced conventional engine technologies to provide increased fuel efficiency while meeting Tier 214 emissions standards, led to a re-examination of the AEO2002 slate of technologies and their associated performance and cost attributes. This research resulted in the adjustment of seven of the advanced conventional technologies used for new vehicle fuel economy evaluation (Table 2). The technologies showing the largest decrease in efficiency improvement include: advanced drag reduction reduced from 6.9 percent to 1.5 percent, variable valve timing reduced from 8 percent to 3 percent, continuously variable transmission reduced from 10 percent to 6 percent, and gasoline direct injection was reduced from 17 percent to 5 percent. In addition, adjustments were made to the expected cost of advanced vehicle technologies. The incremental costs for advanced drag reduction and advanced variable valve timing were reduced reflecting the significantly lower efficiency improvement expected for these technologies. The costs associated with advanced engine friction reduction, advanced tires, continuously variable transmission and gasoline direct injection remained unchanged. The only technology to increase in price was engine accessory improvements. Success in research and development activities has resulted in the introduction of several new advanced conventional technologies. Three of these new technologies were added to NEMS for this analysis: electromechanical valve actuation, intake valve throttling, and variable compression ratio. Each of these technologies is expected to be introduced into the light vehicle market within the next five years. Compared to the AEO2002 Reference Case, the modifications made to the advanced technology assumptions reduced new car fuel economy 6.5 percent and new light truck fuel economy 2.6 percent in 2020. Figures 1 and 2 show the projected car and light truck fuel economy for the AEO2002 Reference Case compared to the AEO2002 Revised Reference Case. In addition to reductions in vehicle efficiency, minor declines in vehicle weight and horsepower occur over the projection period relative to the AEO2002 Reference Case due to reduced market penetration of advanced conventional technologies (Table 3). The impact of the AEO2002 Revised Reference Case fuel economy changes results in a 1.9 percent increase in light vehicle fuel consumption in 2020, an increase of 1.8 billion gallons. 2002 Technology Case The 2002 Technology Case assumes that after year 2002 no new technology will be adopted to increase vehicle efficiency over the forecast period. This case was developed to show the amount of efficiency gained in the AEO2002 Revised Reference Case compared to a case with no new technology. Holding vehicle technology constant over the forecast results in lower projected vehicle prices (Figures 3 and 4). In 2020, car prices projected for the AEO2002 Revised Reference Case are 3.1 percent higher ($770) than those projected in the 2002 Technology case. Light truck vehicle prices are projected to be 2.6 percent higher ($720) in the AEO2002 Revised Reference Case in 2020. The increased vehicle prices reflected in the AEO2002 Revised Reference Case account for the market adoption of technology to improve safety, emissions control, and fuel economy over the projection period. Fuel economy is projected to increase slightly in the AEO2002 Revised Reference Case. Car fuel economy increases from 28.7 in 2002 to 29.7 mpg in 2020. In the 2002 Technology Case, car fuel economy increases to 29.0 mpg in 2020 (Figure 5). In the AEO2002 Revised Reference Case, light truck fuel economy is projected to increase from 21.1 mpg in 2002 to 23.1 in 2014, where it levels off for the remainder of the projection period. For the 2002 Technology Case, light truck fuel economy increases to just 21.4 mpg in 2020 (Figure 6). Although the 2002 Technology Case represents a frozen technology scenario, slight increases in the projected fuel economy of cars and light trucks are realized through sales of electric, hybrid, and fuel cell vehicles sold to meet the Low-Emission Vehicle Program (LEVP) requirements mandated in California. It is assumed that Massachusetts, New York, Maine, and Vermont will also adopt the California LEVP mandates. In the 2002 Technology Case, the difference in new vehicle efficiency over the forecast results in a 4 percent increase in light vehicle energy use in 2020, an increase of 7.6 billion gallons, compared to the AEO2002 Revised Reference Case. H.R. 4 Section 201 – Reduce Gasoline Consumption by 5 Billion Gallons Section 201 of H.R. 4 requires the establishment of new light truck Corporate Average Fuel Economy (CAFE) standards that would reduce cumulative light truck (less than 8,500 pounds gross vehicle weight) gasoline use by five billion gallons from 2004 through 2010. Two separate approaches are provided for evaluating this provision. The first approach does not employ NEMS, but uses a spreadsheet model that replicates the NEMS light vehicle stock model. This approach limits the analysis to energy savings realized by examining standards alone and does not account for any variability that would occur in meeting the new CAFE standard. The second approach measures the energy savings from fuel economy improvements realized in the AEO2002 Revised Reference Case compared to the 2002 Technology Case. Under this approach, light trucks in the 2002 Technology Case exceed the current CAFE standard, as evidenced historically, thus providing a more accurate measure of potential fuel savings from increased fuel economy. For the estimation of potential energy savings in the first approach, it was assumed that manufacturers produce vehicles in the 2004 to 2010 time frame to meet but not exceed the current CAFE standard of 20.7 miles per gallon (mpg). New light truck fuel economy was increased until the desired fuel savings were achieved. It is estimated that the light truck CAFE standard would have to increase to 21.5 mpg in 2004 to achieve the desired gasoline reductions. This increases the current standard of 20.7 mpg by 0.8 mpg or 3.9 percent. If the CAFE standards discussed above were met exactly, the required cumulative fuel use reduction of 5 billion gallons over the proposed time frame would be achieved. Historically, the CAFE actually achieved in any given year varies from the required minimum. This is due to improvements in engine efficiency and changing consumer purchase patterns. Although manufacturers control the fuel economy achieved in the mix of vehicles offered to consumers, ultimately, consumer purchase decisions based on desired performance, size, and/or vehicle type will determine the CAFE achieved by a manufacturer. Light truck manufacturers have failed to meet current CAFE standards only twice in the last 15 years, in 1995 and 1997. Over the same period, light truck manufacturers have met or exceeded a 21 mpg CAFE in 8 years, and twice (1986 and 1987) the light truck CAFE met or exceeded 21.5 mpg. In model year 2001, on average light trucks achieved a CAFE of 21.2 mpg Estimating the potential fuel savings through the examination of standards alone is complicated by the fact that variation in CAFE will occur and that manufacturers have a tendency to, on average, exceed the standard. So, evaluating fuel economy standards as a mechanism to achieve a desired reduction in fuel use should incorporate a reference case that reflects historical trends. Therefore, the second approach calculates the fuel savings realized as a result of the fuel economy improvements projected in the AEO2002 Revised Reference Case compared to the 2002 Technology Case. Projections in the AEO2002 Revised Reference Case show that new light truck fuel economy exceeds the 21.5 mpg CAFE standard estimated in the first approach, increasing from 21.6 mpg in 2004 to 22.5 mpg in 2010. In the 2002 Technology Case, light truck fuel economy remains relatively constant at about 21.2 mpg over the forecast period (Figure 7). As a result of the incremental fuel economy improvements projected for the AEO2002 Revised Reference Case over the 2002 Technology Case, cumulative light truck fuel use is reduced 8.2 billion gallons from 2004 to 2010 (Table 4), amounting to a 0.8 percent cumulative reduction in light vehicle energy use. This shows that in the AEO2002 Revised Reference Case, the H.R. 4 fuel use reduction and implied CAFE improvements are met and exceeded. By 2010, annual light vehicle energy use is reduced 1.8 percent and carbon emissions are reduced 1.9 percent compared to the 2002 Technology Case. Because the energy savings presented in this analysis are in comparison to the 2002 Technology Case and reflect no change in the AEO2002 Revised Reference Case, there was no attempt to quantify the macroeconomic impacts associated with this provision. Sensitivity Case In addition to examining the current fuel economy proposals, it was requested that an additional analysis of CAFE standards be examined for this study. For this Case, the CAFE standard for both cars and light trucks increases 5 percent in 2005 and 10 percent in 2010, compared to the current standard. This increases the current CAFE standard for cars from 27.5 mpg to 28.9 mpg in 2005 and 30.3 mpg in 2010. The light truck CAFE standard increases from 20.7 mpg to 21.7 mpg in 2005 and 22.8 mpg in 2010. The CAFE standards proposed in this Case could be achieved with little impact on incremental vehicle prices relative to the AEO2002 Revised Reference Case. As shown in Figure 8 and Figure 9, vehicle prices increase marginally over the projection period. For the Sensitivity Case, the incremental cost paid for a new car in 2020, is $110 above the AEO2002 Revised Reference Case. For light trucks, the incremental cost increases $60 in 2010, but diminishes to zero by 2020. The incremental costs for the Sensitivity Case are minimal because little additional technology must be adopted to meet the proposed standards. This is primarily due to the AEO2002 Revised Reference Case fuel economy projections closely approximating the standards proposed in the Sensitivity Case. Because only minimal fuel economy improvement is needed to achieve the standard, the incremental fuel economy benefit of additional advanced technology does not pay for the incremental cost. Therefore, the analysis shows it is more cost effective to optimize the AEO2002 Revised Reference technologies for efficiency as opposed to performance. As a result, projections of horsepower and weight, for both cars and light trucks, are lower in the Sensitivity Case. In the Sensitivity Case, car horsepower increases from 165 in 2000 to 198 in 2020, while weight remains constant at 3,100 pounds. Compared to the AEO2002 Revised Reference Case, this amounts to a 10 percent decrease in horsepower and a 7.5 percent decrease in weight, in 2020. But it is important to note that projected vehicle performance attributes of cars in the Sensitivity Case would exceed those of today’s vehicles. Light trucks experience minor performance effects in the Sensitivity Case because initially they have lower levels of advanced technology adoption compared to cars. As a result, there is greater opportunity for improvement from lower cost advanced technologies. Light truck horsepower increases from 193 in 2000 to 249 in 2020 and weight increases from 4,257 pounds to 4,721 pounds over the same time period. Compared to the AEO2002 Revised Reference Case, this represents a 1.6 percent reduction in horsepower and a 1.3 percent reduction in weight in 2020. As indicated above, the imposed standards are achieved for both cars and light trucks. Because cars have higher levels of advanced technology utilization in 2000, there is limited potential for continued improvement, as evidenced in Figure 10. As a result, increases in car fuel economy are more expensive and require greater optimization of existing technology and weight reduction. As shown in Figure 11, light trucks in the AEO2002 Revised Reference Case continue to improve fuel economy over the projection period as additional low cost technology penetrates that market. The analysis shows that to ensure compliance, manufacturers will produce vehicles that marginally exceed the standard. The energy and carbon impacts associated with this standard are minimal. In 2020, fuel use is reduced by 5.5 billion gallons, a reduction of 3 percent from the AEO2002 Revised Reference Case (Table 5). Carbon equivalent emissions from light vehicles are reduced 13 million metric tons (3 percent) in 2020 compared to the AEO2002 Revised Reference Case. Compared to the 2002 Technology Case, in 2020 fuel use is reduced 13.1 billion gallons, a 6.9 percent reduction (Figure 12). As is the case for fuel use reduction in the 2002 Technology Case comparatively, carbon emissions are reduced 6.9 percent. Because energy reductions are so small and the incremental vehicle costs associated with achieving the standards are minimal, the CAFE proposals in this case would not have a significant macroeconomic impact. S. 804 Case At the time of the original request, Section 801 of S. 1766 had been designated as a placeholder for increased fuel economy provisions; therefore, it was originally requested that this study examine the impacts of the CAFE standards proposed in Senate Bill 804 (S. 804). S. 804 proposes that light truck CAFE standards increase to 22.5 mpg for model years 2003 and 2004, 25 mpg for model years 2005 through 2007, and for model years 2008 and later, 27.5 mpg. This bill also changes the gross vehicle weight rating of vehicles included in the estimation of a manufacturer’s corporate average fuel economy by increasing the maximum gross vehicle weight to not more than 10,000 pounds. The previous maximum gross vehicle weight was not more than 8,500 pounds. In effect, this provision requires that heavy-duty light trucks be included in the estimation of a manufacturer’s CAFE. Vehicles defined as having a gross vehicle weight rating of 8,500 to 10,000 pounds are identified as Class 2b vehicles and are included in the CAFE analysis provided below. The inclusion of Class 2b vehicles in the estimation of CAFE increases the difficulty manufacturers will face meeting the proposed standards. Averaging the lower fuel economy of Class 2b vehicles with the current regulated fleet will reduce a manufacturer’s CAFE. In addition, the towing and hauling requirements demanded of these vehicles will add additional burden in meeting the proposed CAFE standard. It is possible that the implementation of such stringent fuel economy standards for Class 2b vehicles would only serve to push the sales of these types of vehicles to the next largest size class where they would not be subject to fuel economy regulation. The intent of the S. 804 provision is to eliminate the disparity between car and light truck CAFE standards. Currently, the CAFE standard for cars is 27.5 mpg while the light truck CAFE standard is considerably lower at 20.7 mpg. The lower standard for light trucks was based on the fact that these vehicles were primarily used as work vehicles in agricultural and trade industries and that they comprised only 20 percent of the light vehicle market when the standard was developed. As the light truck market has evolved from primarily work vehicles (pickup trucks and cargo vans) to passenger vehicles (sport utility vehicles and minivans), sales have increased rapidly. In the last twenty years, the sales of new passenger light trucks have increased from 5 percent of new light truck sales in 1980 to 44 percent in year 2000. Currently, light trucks account for approximately 50 percent of all new light vehicle sales. The CAFE standards analyzed for S. 804 represent a significant increase in new light truck (less than 10,000 pounds GVW) fuel economy. Meeting these standards will require a significant increase in the use of new engine technologies and advanced materials. The analysis of S. 804 examines a menu of 52 advanced conventional engine technologies and lightweight materials to estimate a manufacturer’s ability to meet future CAFE standards. Technologies are introduced at varying dates through the forecast period and are representative of current industry expectations for market introduction. In the evaluation of technology to meet increased CAFE standards, this analysis considered impacts on engine efficiency, horsepower, and vehicle weight compared to incremental costs. In those years where the CAFE standards are not met, trade-offs between performance improvement and efficiency gain are made to ensure that advanced technology adoption is optimized for fuel economy improvement. The projections made for the S. 804 Case show that, given current assumptions regarding future technology introduction dates and associated efficiency improvement, the proposed CAFE standard would not be met (Figure 13). Although light trucks less than 8,500 pounds GVW achieve the standard by 2014, those light trucks greater than 8,500 pounds GVW achieve a fuel economy of only 18.2 mpg, reducing overall light truck CAFE to 26.6 mpg. As a result, light truck manufacturers would pay almost $10 billion in CAFE fines over the projection period. In addition, projections show that compared to the AEO2002 Revised Reference Case the incremental cost of a new light truck would be $1,294 higher (4.4 percent) in 2020 (Figure 19). The economic impacts of this analysis are discussed in the section titled Macroeconomic Impacts. Because both horsepower and weight decline relative to the AEO2002 Revised Reference Case, vehicle performance is relatively unchanged over the projection period. In 2020, light truck horsepower decreases 19.4 percent from, 252 to 203 in the AEO2002 Revised Reference and S. 804 Cases, respectively (Figure 14), while the average weight of a light truck is 800 pounds less in the S. 804 Case compared to the AEO2002 Revised Reference Case, a decrease of 16.7 percent (Figure 15). Compared to a 2000 light truck, weight decreases 273 pounds or 6.4 percent. The horsepower to weight ratio for the AEO2002 Revised Reference Case is projected to increase from 0.045 in 2000 to 0.053 in 2020. In the S. 804 Case, the horsepower to weight ratio grows to 0.051 by 2020. Although this represents a continual increase over the 2000 value, it is a 3.8 percent decrease from the 2020 AEO2002 Revised Reference Case forecast. For the S. 804 Case, light vehicle fuel use is reduced over the projection period (Figure 16). By 2020, this provision results in annual fuel savings of 14.7 billion gallons compared to the AEO2002 Revised Reference Case (Table 6). The reduction in light vehicle fuel demand is projected to reduce net petroleum imports by 5 percent (830 thousand barrels per day) by 2020. The projected decrease in imported petroleum fuels results in a 1.7 percent decrease ($0.42 in 2000 dollars) in world oil prices by 2020. Carbon equivalent emissions from the transportation sector are reduced by 15 million metric tons in 2010 and 34.8 million metric tons in 2020. By 2020, this equates to an annual carbon reduction of 8.0 percent for light vehicles. S. 804 Advanced Date Case The Case described above, the S. 804 Case, uses the same advanced conventional technology assumptions used in the AEO2002 Revised Reference Case. This case, S. 804 Advanced Date Case, assumes earlier introduction dates for eight advanced conventional technologies including: light weight materials, drag reduction, electronic transmission controls, engine friction reduction, camless valve actuation, variable valve timing, low rolling resistance tires, engine accessory improvements, and gasoline direct injection. The introduction date of these technologies was moved forward by three to four years so that they would be available when the proposed CAFE standard begins in 2003. This reflects a very optimistic scenario and is provided to illustrate CAFE compliance sensitivity to technology introduction dates. By advancing the introduction dates, manufacturers are provided technologies that better enable them to meet the S. 804 proposed CAFE standards. As shown in Figure 17, even with these more optimistic technology assumptions, the CAFE standards are not met when Class 2b vehicles are included. However, in this case, light trucks less than 8,500 pounds GVW do meet the CAFE standard in all years except 2008 and 2009. Although Class 2b vehicles show significant improvement over the forecast with fuel economy increasing from 14.2 mpg in 2000 to 18.2 mpg in 2020, including these vehicles in the estimation of CAFE achieved results in light trucks not meeting the standard. The cumulative CAFE fines imposed on manufacturers are reduced $2.6 billion compared to the S. 804 Case to a total of $7.4 billion. Compared to the AEO2002 Revised Reference Case, new light truck costs increase by $1,013 by 2010, and then level off through the projection period to $1,116 (2000 dollars) by 2020 (Figure 19). The early availability of advanced technology drives vehicle cost above the S. 804 Case prior to 2010, but the economies of scale achieved through higher production levels slightly reduces vehicle cost by 2020 (Figure 18). The economic impact associated with increased vehicle sales is discussed in the section titled Macroeconomic Impacts. For the S. 804 Advanced Date Case, in 2020, horsepower decreases 18.3 percent from 252 to 206 in the AEO2002 Revised Reference Case, and the average weight of a light truck is 825 pounds less than the AEO2002 Revised Reference Case, a decrease of 17.2 percent. Compared to a 2000 light truck, weight decreases 297 pounds or 7.0 percent. In the S. 804 Advanced Date Case, the horsepower to weight ratio grows to 0.052 by 2020, slightly higher than the ratio achieved in the S. 804 Case. This is due to increased penetration of advanced conventional technologies. For the S. 804 Advanced Date Case, light truck fuel use is lower than the S. 804 Case. By 2020, annual fuel savings exceed 15 billion gallons (Table 7). The reduction in highway fuel demand is projected to reduce net petroleum imports by 5.2 percent (860 thousand barrels per day) by 2020 compared to the AEO2002 Revised Reference Case. The projected decrease in imported petroleum fuels results in a 1.9 percent decrease ($0.48 per barrel) in world oil prices by 2020. By 2020, carbon equivalent emissions are reduced 35.6 million metric tons, a decrease of 8.2 percent in light vehicle emissions. S. 517 Case For the S. 517 Case, the provision requires that both car and light truck CAFE standards are increased such that by year 2013 a combined light vehicle fuel economy standard of 35 mpg is obtained. The provision requires the Department of Transportation (DOT), after consultation with the Environmental Protection Agency (EPA), to prescribe the standards needed to ensure compliance. If the DOT fails to provide the required standards, the provision provides default standards for cars and light trucks. For cars, the default CAFE standard increases from 27.5 mpg in 2004 to 38.3 mpg in 2013, an increase of 39.3 percent (Figure 19). The default light truck CAFE standards require that fuel economy increase from 20.7 mpg in 2004 to 32 mpg in 2013, an increase of 54.6 percent (Figure 20). The default fuel economy standards outlined in S.517 were used for this analysis. For light trucks, as in the S. 804 Case, the provision increases the average vehicle weight rating of trucks covered under CAFE to not more than 10,000 pounds GVW. This increases the burden vehicle manufacturers face in meeting the new standards. These vehicles are typically used in commercial applications and are purchased for their unique towing and hauling capability. Although not addressed in this analysis, requiring that these vehicles meet the more stringent fuel economy standard, thus increasing the vehicle cost, will likely push consumers into the next largest size class (Class 3 vehicles) where fuel economy standards would not apply. Analysis of this provision shows that the required 2013 CAFE standards will not be achieved for either cars or light trucks. For cars, the standards are met through 2009 after which, fuel economy continues to increase to a peak of 35.9 mpg in 2018 (Figure 19), failing to achieve the required minimum by 2.3 mpg. Light trucks (trucks less than 10,000 pounds GVW) meet the proposed standards through 2007, when fuel economy continues to climb to a peak of 26.5 mpg in 2018 (Figure 20). Light trucks 8,500 pounds GVW and less meet the CAFE standard through 2008 and peak at 29.7 mpg in 2018. The fuel economy of light trucks 8,500 pounds to less than 10,000 pounds GVW increases from 14.5 mpg in 2005 to a peak of 18.2 mpg in 2016. In 2013, the combined fuel economy achieved by cars and light trucks is 30.2 mpg, 4.8 mpg less than the required minimum. By 2020, the combined average increases to 31.0 mpg (Figure 21). The projections made for the S. 517 Case show that vehicle manufacturers would pay $40 billion in CAFE fines over the projection period. In addition, projections show that compared to the AEO2002 Revised Reference Case the incremental cost of a new car would be $535 higher and light trucks would be $961 higher in 2020 (Figure 31). The costs projected for cars and light trucks are shown in Figure 22 and Figure 23, respectively. The lower light truck incremental cost reported in this case reflects reduced cost for advanced technologies due to the increased production levels realized through production increases due to the implementation of these technologies in cars. The economic impacts of this analysis are discussed in the section titled Macroeconomic Impacts. To achieve the fuel economy projected in this analysis, vehicle weight and horsepower are impacted significantly. For cars, horsepower relative to the AEO2002 Revised Reference Case decreases from 220 on average to 168 in 2020 (Figure 24). This is only a slight increase over the 2000 average of 165. Weight is also reduced significantly compared to the AEO2002 Revised Reference Case, decreasing from 3359 pounds to 2723 pounds in 2020 (Figure 25). This is a 364 pound (11.8 percent) decrease relative to a model year 2000 car. Light trucks also experience significant changes relative to the reference. Horsepower decreases from 252 to 206 in 2020 (Figure 26), but this projection still reflects a 6.8 percent increase over model year 2000 levels. Light truck vehicle weight decreases from 4,784 pounds to 3,936 pounds in 2020 (Figure 27), which is similar to a model year 1994 light truck. For the S. 517 Case, reductions in light vehicle fuel use are increased over the S. 804 Case. By 2020, annual fuel savings exceed 22 billion gallons (Table 8). The light vehicle energy use projected for this case is shown in Figure 28. The reduction in highway fuel demand is projected to reduce net petroleum imports by 7.7 percent (1.3 million barrels per day) by 2020 compared to the AEO2002 Revised Reference Case. The projected decrease in imported petroleum fuels results in a 2.7 percent decrease ($0.67 per barrel) in world oil prices by 2020. By 2020, carbon equivalent emissions are reduced 53 million metric tons, a decrease of 12.3 percent in light vehicle emissions.
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