Four Proposals to Improve Fuel Economy Standards - EPIC
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U.S. Energy & Climate Roadmap: Policy Insight<br>Four Proposals to Improve Fuel Economy Standards
To make fuel economy standards more efficient and effective, policymakers could eliminate both size and type distinctions, establish a transparent trading market, and bring emissions testing under the direct supervision of regulators.
Policy Insight HighlightThe Challenge<br>Transportation makes up the largest portion of energy-related greenhouse gas emissions in the United States. Sixty percent of those emissions come from cars and light trucks. Fuel economy standards are the single most important U.S. policy regulating fuel consumption and emissions in the transportation sector. But the program delivered fuel savings that are more than one-third smaller than projected, in part because of two trends: Americans are driving more light trucks and SUVs than expected (52 percent of the market in 2018 versus a projected 36 percent) and vehicles are getting larger, instead of smaller, as projected. As a result, in 2018 and 2019, transportation emissions were among the highest they’ve been in U.S. history.<br>Policy Context<br>The United States enacted its first Corporate Average Fuel Economy Standards (CAFE) in response to the 1973- 1974 oil embargo, which caused oil prices to triple. The program—created by the Department of Transportation (DOT), administered by the National Highway Transportation Safety Administration (NHTSA), and assessed by the Environmental Protection Agency (EPA)—established one national fuel economy standard for passenger cars and another laxer standard for light trucks. In 2007, again amid high oil prices, the program was updated to include a credit trading scheme that allows automakers to transfer credits between its passenger cars and light trucks categories, sell them to other manufacturers, or bank and borrow them across years. This scheme allows investments to be made where the cost of improvement is lowest. Further, the system of “corporate averaging” was replaced with targets adjusted to a vehicle’s footprint with larger vehicles receiving looser targets and each automaker given its own annual target based on the fleet of vehicles it sold. Finally,...