retooling CAFE

Corporate average fuel economy standards for light trucks are under the high beams.

The fuel economy of light trucks maybe in for an overhaul. Born of a single act of Congress in the aftermath of the 1974 oil embargo, the corporate average fuel economy program ordered automakers to increase fuel efficiency of the nation's cars and light trucks. Its near-term goal was ambitious: to double fuel economy of new cars by model year 1985—a mere decade after the law's initial phase-in. And it has succeeded in that task: Carmakers today largely meet the fuel economy limits set for cars and light-duty trucks.

After the mid-1980s, however, fuel standards did not rise appreciatively. Since then, many of the gains in engine and powertrain refinements have been applied to making vehicles heavier and more powerful, and gas consumption in this country has continued to edge up.

The makeup of vehicle fleets has changed in the years since the rules went into effect. Most apparent is the surge in light-duty trucks, a class of vehicles that includes minivans, sport utility vehicles, and pickups, which have more lenient efficiency requirements than passenger cars. And, in some cases, like the Hummer, the heaviest family vehicles are too big to have efficiency requirements at all. Industry-wide sales of new vehicles classified as light trucks approach 50 percent of automobiles.

NHTSA is focusing attention on fuel economy rules for light trucks, such as the Ford Escape, which is shown in the top image making its way down the production line at Ford's Avon, Ohio, assembly plant, and DaimlerChrysler's stylish retro truck, the PT Cruiser.

A new mix of traffic on American roads may call for a new set of rules. Now, the National Highway Traffic Safety Administration is asking for public comment as it reviews the rules for light-duty trucks. What exactly will come of the review is uncertain. The agency already has raised the bar for light trucks. In March 2003, it set new fuel economy marks for 2005 through 2007 models.

These moves are the first since Congress lifted a freeze on fuel economy requirements. Between 1996 and 2001, provisions in the Department of Transportation's annual appropriations bills prohibited changes in CAFE standards.

Some suggestions for reform were published by the National Academy of Sciences in January 2002, in a report that examined the effectiveness of CAFE. The report suggests revising the structure of the light truck standards to reduce incentives to lower vehicle weight, because of the argument that weight increases safety. Other possibilities include modernizing distinctions between passenger cars and light trucks, and expanding CAFE standards to cover vehicles between 8,500 and 10,000 pounds, a category of vehicles that currently does not have to comply.

In its rulemaking proposal, NHTSA said that one criticism of CAFE rules is that its current structure hampers energy-saving potential. NHTSA has said that it is considering reforms for reasons of energy security, traffic safety, economics, and modernization of how trucks and cars are classified. It is currently soliciting public comment for its possible CAFE reforms. The agency has not come up with definite targets for reform. It has stated some possibilities, including those in the National Academy of Sciences report, but is open to suggestions at this point.

The agency is not commenting much on CAFE until the public comment period runs out later this month; neither are car manufacturers, until they have an opportunity to study a specific proposal.

Rae Tyson, a spokesman for NHTSA, noted that light trucks are a presence as a vehicle category in terms of sales and in vehicle registrations. "We felt that we needed to take a fresh look at the program, to find a way of fixing it without sacrificing safety," he said.

Playing by the Rules

Corporate average fuel economy is the average mileage traveled per gallon of fuel by the cars and trucks that a company sells for a given model year. It is a sales-weighted fleet average, based on the vehicles that are sold.

Current rules apply to vehicles of 8,500 pounds or less. The task of maintaining the standards is shared by the National Highway Traffic Safety Administration and the Environmental Protection Agency. NHTSA establishes and amends the standards, while the EPA calculates the average fuel economy for each manufacturer, either through data supplied by the manufacturer, or by conducting its own tests.

CAFE covers two broad categories of four-wheel vehicles. Passenger cars are designated for road use and used primarily for transporting people. Trucks are designed for off-road use, have four-wheel drive, or meet certain weight and design requirements; or they fulfill one or more functions related to people transport and use, open-bed space, and cargo-carrying capacity.

Passenger car and light truck fuel standards had different beginnings. Congress set the passenger car standards with the Energy Policy and Conservation Act, enacted in 1975. The law took effect with the 1978 model year. After incremental changes, fuel efficiency of cars has held steady at 27.5 miles per gallon since 1990.

Diesels, such as the engine that powers the Mercedes-Benz A-Class car in Europe, account for nearly half of new vehicle sales there.

Congress did not specify a target for light truck fuel economy, but provided that maximum levels for light trucks be set for the 1979 model year, and for each model year thereafter. That responsibility fell to NHTSA, which has set light truck standards for each model year between 1979 and 2007. The latest standards were set in March last year, at 21 miles per gallon for the 2005 model year, 21.6 mpg for 2006, and 22.2 mpg for 2007. The previous level was 20.7 mpg, set in 1996.

CAFE standards are not without loopholes. The Chrysler PT Cruiser, for example, DaimlerChrysler's 1930s getaway-style car, is actually classified as a truck because its back seats are removable. Subaru reportedly is modifying the design of its Outback station wagon and sedan to be classified as a truck. General Motors' Hummer H2 and Ford's Excursion, both tipping the scales at around 8,600 pounds, skirt the rules entirely. Car companies get fuel mileage credits for producing flexible fuel vehicles capable of running on ethanol, yet rarely see a drop of it, according to critics.

CAFE rules have always been a contentious issue, and any reforms are likely to raise arguments over safety, jobs, and the environment. Dan Becker, director of the Sierra Club's global warming and energy program, said that average gas mileage has been slipping.

Gary Rogers, president, CEO, and director of FEV Engine Technology Inc. in Auburn Hills, Mich., who sat on the National Academy of Sciences committee on fuel economy, noted that CAFE attempts to deal with issues that are both complicated and intertwined.

Ultimately, any reform to CAFE rules is a political decision, and no one knows what form reforms will take or if they will occur at all. But interviews with experts—several of whom worked on the report—give some idea of the potential direction that reform could take.

Automakers have become adept at playing by CAFE rules, and have lobbied hard in the past against changes. The rules provide manufacturers with some flexibility. For example, if an automaker exceeds the established standards, it earns credits for the miles per gallon by which it exceeded the target. The company can apply the credits to its previous three model years, or to its next three. The credits cannot be transferred between manufacturers or between domestic passenger car and light truck fleets.

Eron Shosteck, a spokesman at the Alliance of Automobile Manufacturers, a trade group in Washington, D.C., said that automakers produce more than 30 models that are rated at 30 mpg, and they are poor sellers. In his view, CAFE puts automakers at odds with consumer demand for larger, more powerful cars.

Manufacturers cannot control how far, fast, or under what conditions people drive, which CAFE does not address, he said. Nor do they control the price of gas. "When gas is cheaper than bottled water, there is no incentive to use less of it," Shosteck said.

Charles Amann, a retired research fellow at General Motors Research Laboratories in Warren, Mich., said that weight is the single most important factor in improving fuel economy. The second most important factor is performance. "When manufacturers put out a car and offer it with a choice of gasoline engines, statistically the consumers do not pick the weak-performing vehicle," he said.

Working Within Limits

John Heywood is director of the Sloan Automotive Laboratory at the Massachusetts Institute of Technology in Cambridge. There are a lot of ways to apply technology to lower fuel consumption, but all cost some money to apply, he said. CAFE really tells manufacturers to price products in a way that encourages people to buy lower-consumption vehicles, Heywood said. The problem is that sometimes the market doesn't respond well.

Heywood said that it's very difficult to write a CAFE regulation that gives all manufacturers roughly equal challenges. He thinks that an interrelated set of strategies could be more effective than stand-alone CAFE standards in curbing fuel consumption. A rebate system for vehicles that consume less fuel, for example, could provide an incentive for people to buy them. A gasoline tax could cut fuel consumption by making it more expensive.

According to Heywood, "If we want to be effective, we have to have synergistic policies that impact the manufacturer, the purchaser, and the user." An integrated set of policies would also be perceived to be much more fair and even-handed, he said.

In December of last year, a report by the Congressional Budget Office compared the relative costs to automakers and consumers of three policy alternatives: raising CAFE standards, trading fuel economy credits among producers, and a higher gasoline tax. The average federal, state, and local tax on gasoline today is 41 cents a gallon. The report said that, over the 14-year useful life of a car, the gasoline tax would save more gasoline than CAFE standards with credit trading, at a lower cost.

Phillip Myers, professor emeritus and a former chair of the mechanical engineering department at the University of Wisconsin at Madison, who co-founded the school's Engine Research Center, was a member of the National Academy of Sciences panel. He thinks that CAFE is an ineffective way to cut fuel consumption. "The amount of fuel consumed is determined by two factors. One is the amount of miles the car is driven in a year; the other is fuel economy, or how many gallons per mile," he said. The economic approach—
taxes—would be more effective. Unfortunately, it is also politically unpalatable, he said.

David Greene, a corporate fellow at Oak Ridge National Laboratory in Tennessee, believes that today's fuel consumption is 3 million barrels of oil a day less than it would be if there were no improvements in fuel economy since 1975. Between 1975 and 1984, technology improvements in cars and light-duty trucks increased by 62 percent without any loss in performance as measured by 0-60 miles per hour acceleration times, according to the National Academy of Sciences report, on which Greene worked. By 1985, cars and light trucks were meeting CAFE standards, followed by a tradeoff between improvements in fuel efficiency and improvements in performance. Fuel economy remained pretty much unchanged, while vehicles became 20 percent heavier and 25 percent faster.

A better choice may lie in incentives to improve fuel economy, Greene said. One possible alternative to CAFE would be a system of fees and incentives tied to the fuel efficiency of a new car. Vehicles not meeting a target would be subject to a tax; those surpassing a target would receive a rebate. Such a system could provide an incentive to adopt new technology to improve fuel economy rather than add to performance and weight, he said.

Another possibility is a weight-based standard, Greene and others have suggested. That is a controversial option.

Any talk of weight standards must take safety concerns into consideration. The National Academy of Sciences committee on CAFE standards concluded that downweighting and downsizing that occurred in the late 1970s and early 1980s probably resulted in additional traffic fatalities.

Hybrid-electric vehicles are an exotic approach to raising fuel economy. Workers install a Prius engine at a Toyota plant in Japan. Toyota currently produces about 47,000 Prius hybrid electric vehicles annually.

Not everyone on the committee agrees. Greene, for one, believes that it's not clear how modest weight reductions affect safety.

Nevertheless, Adrian Lund, chief operating officer of the Insurance Institute for Highway Safety in Arlington, Va., is concerned that simply raising the CAFE standards, as they are currently structured, will encourage carmakers to reduce vehicle weights, thus improving the average fuel economy of its fleet so it can continue meeting the standards.

Lund believes that a weight-based system could be constructed that indexes allowable fuel consumption to the weight of the vehicle. Requiring every vehicle to have better fuel economy would force manufacturers to use technology to improve fuel economy, rather than applying those gains to increase power.

Although, to a point, heavier vehicles appear to be safer than lighter ones, according to Lund, the safety advantage begins to diminish with heavy vehicles, particularly those heavier than 4,000 pounds. A weight standard might be structured to force manufacturers to reduce the weight of the heaviest vehicles with a relatively small tradeoff on safety.

Lund thinks it's inevitable that fleets will include a wide range of vehicle types. Given the interest of the public in SUVs, these vehicles will continue to be a factor. Lund said he expects to see fewer of the largest truck-class vehicles. At the other extreme, there could be fewer of the very lightest vehicles, which present the most serious safety issues, in his view. "If we could work on both ends of the distribution, we would see an improvement in safety," he said.

John H. Johnson, a professor of mechanical engineering at Michigan Technological University in Houghton, favors an attribute-based system based on payload capacity or volume instead of weight, which he believes could discourage changing car designs to meet light-truck requirements. He also thinks that attributes should be normalized to gallons per 100 miles, because it measures consumption of fuel over distance.

Tehnology Alternatives

John J. Wise, retired vice president of research at Mobil Research & Development Corp., in Princeton, N.J., believes that there's still plenty of potential for existing technology to improve fuel economy. The National Academy of Sciences report analyzed the cost effectiveness of the application of existing technology on various classes of cars and light trucks.

In the analysis, existing technologies were added, starting with the least expensive to implement, until the incremental fuel saved didn't pay for the initial cost of adding the improvement. Two analyses were done: one over 14 years, representing the approximate life of a car; and over three years, representing the length of ownership by a typical user. The analysis was based on a cost of $1.50 for a gallon of gasoline.

All of the technologies were "weight neutral," that is, they did not add to the weight of the vehicle. They included low-friction lubricants, multivalve overhead camshaft, variable valve timing, cylinder deactivation, high-speed automatic transmission, and improved rolling resistance, among other things. The analysis excluded more exotic and expensive technologies, such as hybrids.

The bottom line of the analysis is that proven technology can cost-effectively improve fuel efficiency, with light trucks showing the biggest opportunity for improvement. "Our argument is that, over the life of the car, if we imposed rules that forced this kind of improvement, the country would save roughly 2 million barrels of oil a day, which is what we get from the Mideast. And, it wouldn't cost the country anything to do this," said Wise.

Gary Rogers of FEV Engine Technology said that diesel engines have the potential to reduce fuel use. He said diesel engines are clean, powerful, and have better torque characteristics than gasoline engines. He sees that heavier vehicles—those 5,000-pound-plus SUVs and light trucks—would be the best candidates for diesel. In Europe, where fuel prices are much higher than in the United States, diesels are much more common on the road, he said.

Rogers pointed out that diesels have an advantage over other fuel-saving technologies, such as hybrids, in that the diesel infrastructure is well established. (FEV develops engine technology for both diesels and hybrids.)

"If we look at the gallons consumed and the proliferation of larger vehicles, it makes sense to focus on strategies that can have the biggest impact," said Rogers.

Changes don't occur overnight in the automotive industry, where companies may require four years to develop new engines and powertrains, he said. That reality calls for long-range thinking that gives the industry an opportunity to respond.

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