CORPORATE AVERAGE FUEL ECONOMY FOR MY 2011-2015 …

[Pages:100]U.S. Department Of Transportation

PRELIMINARY REGULATORY IMPACT ANALYSIS

CORPORATE AVERAGE FUEL ECONOMY FOR MY 2011-2015

PASSENGER CARS and LIGHT TRUCKS

Office of Regulatory Analysis and Evaluation National Center for Statistics and Analysis April 2008

TABLE OF CONTENTS

Executive Summary ......................................................................................... i

I. Introduction........................................................................................ I-1

II. Need of the Nation to Conserve Energy ............................................II-1

III. Regulatory Alternatives ....................................................................III-1

IV. Impact of Other Motor Vehicle Standards on Fuel Economy ..........IV-1 Vehicle Size and Safety ....................................................................IV-7 The Impact of Emission Standards ..................................................IV-18

V. Fuel Economy Enhancing Technologies and the Volpe Model........ V-1 The Volpe Model ............................................................................. V-52 Penetration of Technologies by Alternative ................................... V-127

VI. Manufacturer Specific CAFE Capabilities .......................................VI-1

VII. Cost Impacts..................................................................................... VII-1 The Impact of Higher Prices on Sales ........................ .........VII-41 Potential Impact on Employment .......................................VII-53

VIII. Benefits .......................................................................................... VIII-1 Discount Rate.................................................................................. VIII-1 Sales Projections ............................................................................. VIII-3 The "Rebound Effect"..................................................................... VIII-5 On-Road Fuel Economy Adjustment....................................VIII-8 Benefits from Fuel Savings............................................................. VIII-9 Other Economic Benefits from Reducing Petroleum Use ............. VIII-21

TABLE OF CONTENTS cont.

Emissions Reductions Resulting from Fuel Savings ..................... VIII-25 Summary of Benefits .................................................................... VIII-36

IX. Net Benefits and Sensitivity Analysis...............................................IX-1 Payback Period.................................................................................IX-14

X. Probabilistic Uncertainty Analysis ................................................... X-1

XI. Regulatory Flexibility Act and Unfunded Mandates Reform Act ...XI-1

Appendix A: Required MPG Levels............................................................ A-1

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EXECUTIVE SUMMARY

This assessment examines the costs and benefits of improving the fuel economy of passenger cars and light trucks for model years (MY) 2011- 2015. It includes a discussion of the technologies that can improve fuel economy, analysis of the potential impact on retail prices, safety, lifetime fuel savings and their value to consumers, and other societal benefits such as improved energy security and reduced emissions of pollutants and greenhouse gases1.

In the previous rulemaking, the agency reformed the corporate average fuel economy (CAFE) standards for light trucks with a size-based standard based on footprint2. This rulemaking continues this approach for both passenger cars and light trucks. A continuous mathematical function provides a separate fuel economy target for each footprint. Different parameters for the continuous mathematical function are derived for each model year. Individual manufacturers will be required to comply with a single fuel economy level that is based on the distribution of its production among the footprints of its vehicles in each particular model year. Although the same reformed CAFE scheme is proposed for both passenger cars and light trucks, they are established with different continuous mathematical functions specific to their design capabilities.

The agency is proposing the "Optimized (7%)" alternative. In this alternative the agency uses a 7 percent discount rate to value benefits and sets the proposed mpg levels where marginal costs equal marginal benefits. It is one of six alternatives examined in the analysis. We also examined a second optimized scenario when discounting benefits at 3 percent "Optimized (3%). In general order of increasing severity (see Table 1), the seven scenarios examined are:

1: "25% Below Optimized": This alternative mirrors the absolute difference in mpg derived from the 25% Above Optimized scenario in going the same mpg amount below the Optimized 7% alternative 2: "Optimized (7%) An increase in the standard based upon availability of technologies and a marginal cost/benefit analysis, as was used in setting the MY 2008-2011 light truck standard. The mpg levels are set using a 7 percent discount rate for benefits. 3: "25% Above Optimized": This alternative looks at the mpg levels of the Optimized (7%) and the Total Cost Equals Total Benefit alternative and picks mpg levels that are 25 percent of that difference.

1 This analysis does not contain NHTSA's assessment of the potential environmental impacts of the proposed standards and reasonable alternatives for purposes of the National Environmental Policy Act (NEPA), 42 U.S.C. 4321-4347. On March 28, 2008, NHTSA published a notice of intent to prepare an environmental impact statement (EIS) and opened the NEPA scoping process (73 FR 16615). NHTSA will consider the potential environmental impacts of the proposed standards and reasonable alternatives through the NEPA process, and NHTSA's NEPA analysis will inform any further action on the proposed standards, consistent with NEPA and EPCA. 2 Vehicle Footprint is defined as the wheelbase (the distance from the center of the front axle to the center of the rear axle) times the average track width (the distance between the centerline of the tires) of the vehicle (in square feet).

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4: "50% Above Optimized": This alternative looks at the mpg levels of the Optimized (7%) and the Total Cost Equals Total Benefit alternative and picks mpg levels that are 50 percent of that difference. 5: "Optimized (3%) An increase in the standard based upon availability of technologies and a marginal cost/benefit analysis, as was used in setting the MY 2008-2011 light truck standard, except that the mpg levels are set using a 3 percent discount rate for benefits. 6: "Total Costs Equal Total Benefits": An increase in the standard to a point where essentially total costs of the technologies added equals total benefits. In this analysis, for brevity, at times it is labeled "TC = TB". 7: "Technology Exhaustion": An increase in the standard based upon the maximum usage (based on NHTSA's perspective) of available technologies, disregarding the cost impacts.

Table 1a shows the agency's projection of the actual harmonic average that would be achieved by the manufacturers, assuming those manufacturers whose plans are above the requirements would achieve those higher levels. Table 1b shows the estimated required levels. All of the tables in this analysis compare an adjusted baseline to the achieved harmonic average in Table 1a.

Costs: Costs were estimated based on the specific technologies that were applied to improve each manufacturer's fuel economy up to the level required under each alternative. Table 2 provides those cost estimates on an average per-vehicle basis, and Table 3 provides those estimates on a fleet-wide basis in millions of dollars. Costs are not discounted.

Benefits: Benefits are determined mainly from fuel savings over the lifetime of the vehicle, but also include externalities such as reductions in criteria pollutants. Table 4 provides those estimates on an industry-wide basis.

Net Benefits: Table 5 compares costs and benefits of each alternative. The values in Table 5 compare societal benefits to societal costs of each alternative. Thus, it does not use the values of Table 2, which include fines paid by manufacturers and transferred to consumers to pay.

Fuel Savings: Table 6 shows the lifetime fuel savings in millions of gallons.

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Table 1a

Alternative CAFE Levels Projected Harmonic Average for the Fleet3

(in mpg)

Passenger Cars 25% Below Optimized Optimized (7%) 25% Above Optimized 50% Above Optimized Optimized (3%) TC = TB Technology Exhaustion

MY 2011 30.5 31.0 31.5 31.7 32.2 32.3 32.3

MY 2012 31.2 32.3 33.3 34.0 34.5 35.0 35.2

MY 2013 31.9 33.1 34.2 35.1 35.5 36.1 36.6

MY 2014 32.8 33.9 35.3 36.4 37.0 37.6 38.5

MY 2015 33.5 34.7 36.1 37.6 38.2 38.8 39.9

Light Trucks

25% Below Optimized

24.3

25.5

27.3

27.3

27.4

Optimized (7%)

24.4

25.8

27.5

28.0

28.4

25% Above Optimized

24.4

26.1

27.8

28.5

29.5

50% Above Optimized

24.6

26.3

28.0

28.9

30.0

Optimized (3%)

24.4

25.8

27.7

28.2

28.8

TC = TB

24.7

26.5

28.5

29.5

30.5

Technology Exhaustion

24.7

26.6

29.4

30.3

31.3

3 The values represent the higher of the manufacturer's plans and the alternative level of the standard.

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Table 1b Estimated Required Average for the Fleet

(in mpg)

Passenger Cars 25% Below Optimized Optimized (7%) 25% Above Optimized 50% Above Optimized Optimized (3%) TC = TB Technology Exhaustion

MY 2011 29.6 31.2 32.8 34.3 37.1 37.5 38.6

MY 2012 30.3 32.8 35.3 37.8 39.1 42.7 45.4

MY 2013 31.7 34.0 36.1 38.5 39.3 43.0 48.9

MY 2014 32.7 34.8 36.8 38.9 40.7 43.1 50.1

MY 2015 33.9 35.7 37.5 39.5 40.9 43.3 52.6

Light Trucks

25% Below Optimized

24.9

26.0

27.5

27.5

27.5

Optimized (7%)

25.0

26.4

27.8

28.2

28.6

25% Above Optimized

25.1

26.9

28.0

28.8

29.8

50% Above Optimized

25.3

27.3

28.3

29.5

30.9

Optimized (3%)

25.0

26.4

28.0

28.5

29.0

TC = TB

25.6

28.1

28.8

30.8

33.1

Technology Exhaustion

25.9

28.6

32.2

33.1

34.7

See Appendix A for more information on the required levels.

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Table 2 Average Incremental Cost Per Vehicle ? Consumer Perspective

(2006 Dollars)

Passenger Cars 25% Below Optimized Optimized (7%) 25% Above Optimized 50% Above Optimized Optimized (3%) TC = TB Technology Exhaustion

MY 2011 126 276 494 620 896 966

1,038

MY 2012 126 334 778

1,133 1,284 1,685 2,032

MY 2013 187 404 871

1,251 1,376 1,829 2,406

MY 2014 294 512

1,078 1,501 1,706 2,159 2,889

MY 2015 428 649

1,185 1,694 1,915 2,367 3,264

Light Trucks 25% Below Optimized Optimized (7%) 25% Above Optimized 50% Above Optimized Optimized (3%) TC = TB Technology Exhaustion

185

526

738

705

708

224

617

861

924

979

279

873

1,141

1,352

1,655

385

1,008

1,347

1,644

2,041

227

616

955

1,028

1,145

501

1,325

1,770

2,171

2,509

536

1,364

2,255

2,507

2,785

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