Accelerated CAFE standards unveiled

An Earth Day announcement from the U.S. Department of Transportation has sped up the timeclock for automakers to comply with the Corporate Average Fuel Economy, or CAFE, standards laid out in the energy bill signed into law in January.

Under the proposed new rules, passenger cars need to reach 35.7 miles per gallon by 2015, up from the current 27.5, and light trucks are required to achieve 28.6 miles per gallon, up from 23.5.

That's a 25 percent increase in fuel efficiency standards over 5 years, starting with the 2011 model year.

By 2020, the new energy bill signed by President Bush requires the fleetwide average of new cars and trucks to meet 35 miles per gallon (see U.S. lawmakers reach deal on CAFE standards).

The proposed rules unveiled today set a schedule that is more ambitious than initially expected by the industry.

But Charles Territo of the Alliance of Automobile Manufacturers told the Cleantech Group that car makers are ready.

"I think you'll see more clean diesel vehicles, more hybrid electric vehicles. You'll see more flexible fuel, ethanol capable vehicles," he said. "They're going to use every tool in the box."

When fully implemented, the CAFE standards are expected to result in a minimum 40 percent increase in fuel economy standards and a 30 percent reduction in greenhouse gas emissions through 2020.

The Department of Transportation said the new rules would save nearly 55 billion gallons of fuel and cause a reduction in carbon dioxide emissions estimated at 521 million metric tons.

According to the department, tailpipe emissions from motor vehicles represent 97 percent of the total greenhouse gas emissions from vehicles.

The transportation agency said the standards released today would save U.S. drivers over $100 billion in fuel costs over the lifetime of the vehicles covered by the rule.

"I think there are certainly technological challenges, but manufacturers are committed to being part of the solution," said Territo.

"We're going to do what we need to do to meet these standards and still provide consumers with the types of vehicles they demand."

The Alliance of Automobile Manufacturers is a trade association of 10 car and light truck manufacturers, including the Big Three — Chrysler, Ford Motor (NYSE: F) and General Motors (NYSE: GM).

The group said that last year more than 1.8 million hybrid electric, ethanol capable flexible fuel vehicles and clean diesel vehicles were sold in the U.S., up 15 percent over 2006.

This year, more than 70 models of alternative fuel vehicles are available at dealers around the country, according to the alliance.

In addition to a boost in the number of currently available technologies, there could be some up and coming cars and trucks hitting the market as well.

"Some of the companies are hoping that plug-in hybrids will be readily available," said Territo. "In 2001, there were two hybrids for sale in the United States. In 2008, there are 24 models for sale, and I think you'll see that number continue to grow each year."

There's also an incentive in the energy law for automakers to exceed the CAFE standards, giving them a chance to earn credits, although environmental and consumer groups have expressed concern that vehicle manufacturers would use a credit trading system in lieu of increasing fuel economy.

Under the proposed new rules, credit trading would be permitted beginning with credits earned in the 2011 model year.

But there are penalties too, set at $5.50 for each tenth of a mile per gallon that a manufacturer's average fuel economy falls short of the standard for a given model year.

The National Highway Traffic Safety Administration has collected $735.4 million to date in CAFE penalties, the largest ever being paid by DaimlerChrysler for its 2006 model year import passenger car fleet.

DaimlerChrysler, which has since split up, paid $30.2 million for that penalty.

Automakers needing to meet the new standards won't just be working on hybrids, there will still be gasoline cars being rolled out.

"There will continue to be improvements to the internal combustion engine. It won't all be alternative fuel autos," said Territo.

The new rules are are expected to be finalized by the end of Bush's time in office.