By congressional request, the Energy Information Administration (EIA) recently analyzed the effects of three bills addressing light vehicle fuel economy. The analysis compares the bills' projected effects with an updated reference case forecast from the Annual Energy Outlook 2002 that assumes adoption of advanced conventional technologies, and with a case that assumes no new vehicle technologies are adopted during the projection period. (Though not discussed in this Energy Plug, the report also examines provisions of two bills intended to boost use of alternative fuels.) The five cases relating to the Corporate Average Fuel Economy (CAFE) standards are summarized here:

H.R. 4 Case
H.R. (House of Representatives) 4 requires that the CAFE standards for light trucks (pickups, vans, minivans, and sport utility vehicles) must increase enough to save a cumulative 5 billion gallons of gasoline between 2004 and 2010. If it is assumed that only current technologies are available through the period, the light truck CAFE standard would have to rise from the current 20.7 miles per gallon (mpg) to 21.5 mpg in 2004.

However, if the starting point is a reference case from the Annual Energy Outlook 2002 (AEO2002), revised to incorporate the introduction of advanced technologies (multiple valves per cylinder, variable valve timing, continuously variable transmissions, and others), these lead by themselves to a projected cumulative light truck fuel savings of 8 billion gallons by 2010.

Sensitivity Case
This case specifies a rise in CAFE standards for all light vehicles, including cars, of 5 percent over current standards (20.7 mpg for light trucks, 27.5 mpg for cars) in 2005 and 10 percent in 2010.

EIA projects that the proposed standards could be met with minimal impact on vehicle prices or performance. Light truck prices are projected to rise by $60 in 2010 and car prices by $40. Light vehicle annual fuel use is reduced 1.6 billion gallons (1 percent) compared to the revised AEO2002 reference case.

S. 804 Case
Senate Bill 804 proposes that the standards for light trucks increase to 22.5 mpg for model years 2003 and 2004, 25 mpg for 2005 through 2007, and 27.5 mpg for 2008 and beyond. It also includes heavy-duty light trucks in manufacturers' CAFE calculations by raising the gross vehicle weight (GVW) for light trucks from 8,500 pounds to 10,000 pounds.

EIA's analysis of S. 804 assumes that automakers introduce advanced conventional engine technologies and lighter materials during the forecast period, but the proposed CAFE standard is projected not to be met because the heavy-duty light trucks achieve only 18.2 mpg and pull the light truck fleet average down to 26.6 mpg.

The resulting non-compliance fines total nearly $10 billion through the forecast period. The measure saves 14.7 billion gallons of fuel per year by 2020 (compared to the revised reference case), reducing petroleum net imports 5 percent, world oil prices 1.7 percent, and light-vehicle carbon equivalent emissions by 8 percent per year by 2020.

S. 804 Advanced Date Case
This case uses the same assumptions as the S. 804 case but advances the introduction dates for eight technologies by 3 to 4 years. The light truck fleet still falls short of the proposed standard, again because of inadequate improvement by heavy-duty light trucks. However, manufacturers' noncompliance fines total $7.4 billion, $2.6 billion less than in the S. 804 case.

S. 517 Case
S. 517 requires that CAFE standards rise enough to achieve a car and light-truck combined fuel economy rating of 35 mpg by 2013. As in S. 804, light trucks are redefined to include those of up to 10,000 pounds GVW.

EIA's analysis suggests that neither cars nor light trucks would meet their category standard; cars reach 35.9 mpg by 2018, 2.4 mpg short, while light truck fuel economy peaks at 26.5 mpg in 2018, 5.5 mpg short. Manufacturers would therefore pay $40 billion in noncompliance fines. Car and light truck prices in 2020, on average, would be $535 and $961 higher, respectively.

Economic Impacts
S. 804 is projected to raise light truck prices, thus reducing aggregate personal consumption and investment throughout the economy. Small drops in gross domestic product (GDP) and employment result; in 2010 real GDP is 0.14 percent lower than the reference case (0.22 percent lower in the S.804 advanced date case), while nonagricultural employment is 0.15 percent lower. Investment rebounds later and by 2020 GDP is only 0.07 percent below reference levels.

S. 517 raises both car and light truck prices and by 2015 they are higher than in the S. 804 cases. GDP is 0.30 percent lower than the reference case in 2015. The reduction in nonagricultural jobs peaks in 2015 at 453 thousand and falls to 293 thousand jobs in 2020 (0.19 percent lower than the reference case).

The discounted (at 7 percent) present value of the changes in total real GDP from 2003 through 2020 for the S. 804 case, the S. 804 advanced date case, and the S. 517 case are -0.11 percent, -0.11 percent, and -0.14 percent, respectively.

Analysis of Corporate Average Fuel Economy (CAFE) Standards for Light Trucks and Increased Alternative Fuel Use (SR/OIAF/2002-05) is available only on EIA's website.

If you are having technical problems with this website, please contact the EIA Webmaster at wmaster@eia.doe.gov or call 202-586-8959. For general information about energy, contact the National Energy Information Center at 202-586-8800 or infoctr@eia.doe.gov.

Questions about the report's content should be directed to:

John Maples, Office of Integrated Analysis and Forecasting
john.maples@eia.doe.gov
Phone: (202) 586-1757

URL: http://www.eia.doe.gov/emeu/plugs/plcafe02.html
File last modified: March 26, 2002